The cost of electricity in Spain exceeds a new maximum since the Iberian cap came into force, while Europe insists on modifying the calculation of prices for being outdated
Europe is unable to contain the dizzying rise in electricity prices that it has been experiencing strongly in the last two weeks as a result of the rise in the cost of gas. The invoice of all countries is still out of control for one more day, including that of Spain despite the Iberian cap being in force. And faced with this reality, without the rigor of the meteorological winter yet having arrived, the European Commission has proposed an “emergency intervention” to appease the market in the middle of August.
The President of the Community Executive, Ursula von der Leyen, has recalled what many countries, including Spain, have been insisting since Russia began the invasion of Ukraine: that the current hourly and daily price formation system “was developed for different circumstances” several decades ago. And that now work is being done on that intervention and on “a structural reform of the electricity market.”
The plans of the European Commission included a revision of the current mechanism, in which the latest technology necessary to supply all the electricity demand is the one that sets the daily price. Being the combined cycle power plants -those that use gas to produce light- the ones that mark that cost, the most expensive, the final price has gone out of control. Von der Leyen has indicated that this mechanism was designed “for other circumstances” and that it is behind the “exorbitant” prices paid on the continent in the context of the war in Ukraine by linking the price of gas to that of other energies.
In a speech at the Strategic Summit in Bled, in Slovenia, in which she has asked to cut all energy dependence on Moscow and has proposed a greater defense of democracy as a response from Europe to the invasion of Ukraine, the president of the Community Executive has insisted in which “exorbitant prices” expose the “limitations” of the design of the current electricity market.
In this sense, he has called for a European response to Russian energy “blackmail” in the midst of escalating energy prices, which draws the first doubts about European unity with respect to the sanctions that Europe applies to imports of Russian crude. “The era of Russian fossil fuels in Europe is over and freeing ourselves from blackmail will bring us more power to defend the global order,” she said.
In fact, the average price of electricity for regulated rate customers linked to the wholesale market will rise 8.5% on Tuesday compared to this Monday, up to 459 euros per megawatt hour (Mwh), thus reaching a new maximum since the Iberian exception came into force.
This price is the result of adding the average of the auction in the wholesale market to the compensation that the demand will pay to the combined cycle plants for the application of the ‘Iberian exception’ to cap the price of gas for the generation of electricity.
In this way, the price rises strongly again and exceeds the previous maximum since the entry into force of the ‘Iberian exception’ that marked last Wednesday, when it climbed to 436.25 euros/MWh.
In the auction, the average price of electricity in the wholesale market (the so-called ‘pool’) has been located for this Tuesday at 201.96 euros/MWh. The maximum price will be registered between 10:00 p.m. and 11:00 p.m., with 237 euros/MWh, while the minimum for the day, of 160 euros/MWh, will be between 5:00 p.m. and 6:00 p.m.
To this price of the ‘pool’ is added the compensation of 257.44 euros/MWh to the gas companies that has to be paid by the consumers who benefit from the measure, the consumers of the regulated rate (PVPC) or those who, despite being in the free market, they have an indexed rate.
This spiral of high electricity prices that has occurred over the last week has been driven by natural gas price levels at maximum levels, mainly due to Gazprom’s announcement to cut from August 31 and for three days pumping gas to Germany.
However, gas futures contracts in the Dutch TTF market fell by more than 17% at the start of the week, reaching below 280 euros/MWh for September contracts.
In the absence of the ‘Iberian exception’ mechanism to cap the price of gas for electricity generation, the price of electricity in Spain would be on average around 521.3 euros/MWh, which is around 61.9 euros/MWh more than with the compensation for clients of the regulated rate, who will thus pay 11.87% less on average.
The electricity market prices for this Tuesday in the rest of the European countries will also mark especially high levels. Thus, in the case of France it is above 740 euros/MWh, while in Germany it will be more than 660 euros/MWh and in Belgium and the Netherlands 622 and 607 euros/MWh, respectively.
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