The rise in prices, motivated by the rebound in activity and geopolitical tensions, disrupts the energy bill of households
It is not going to be a digestible end of the year for the budget of families or companies. The exponential increase in prices (inflation closed at 4% in September, its highest level since the previous crisis) is already a problem that can mitigate the recovery after the pandemic. And in that spiral of the price basket that does not stop rising is gas.
The cost of this raw material is the origin of the rise in electricity – the variable that will most influence the evolution of the electricity bill in the coming months – and the pothole that many consumers will have to overcome when inclement weather arrives, if the supply does not suffer any unforeseen. These are the keys to the gas energy crisis that threatens to shake the European economy, at least until next spring.
How much is the gas?
At maximum levels. The price per megawatt / hour (MWh) by which this raw material is governed is around 90 euros. At the beginning of the year, it was around the level of 20 euros / MWh. In other words, it has quadrupled its cost in just nine months in international markets.
The impact on the electricity bill …
The price of gas directly determines what each home or business pays on the electricity bill. Most of the combined cycle plants work through this raw material. These plants are the most expensive when it comes to establishing the daily price of the electricity market. And although they are the last that usually enter that price ‘pool’, their contribution is necessary to guarantee the supply of the entire country on a daily basis. The more cycles that are needed, the more the bill goes up because these plants are fueled by gas, which, in turn, is becoming more and more expensive.
… and on the gas bill
Given the exponential rise in prices, the receipt of natural gas will suffer in the coming months. Those who have contracted rates in the free market will see new conditions when their contracts expire, updating the price they pay for gas. In the case of the 1.58 million households with regulated contracts (the TUR rate), the price review is quarterly. To avoid an impact of a rise that could reach 30% or 40% in one go, the Government has applied a limit to that rise: an increase of 4.4% for this quarter. And in similar terms, it will be applied in the first section of 2021. It will be from March when these users will foreseeably have to assume the cost of gas, which is now limited for the winter stage, when more use of the heating is carried out.
The first, and most important, is in China. The Asian giant has an overwhelmed demand in full recovery after the coronavirus crisis. They need a lot of gas for their industries and their homes. And the international market suffers from an economy of 1 billion people. In fact, the fear of escalating tensions has led the country’s authorities to order the main state energy companies to secure supplies. In addition, another energy power, Russia, has decided to close a part of the gas tap that reaches Europe through Gazprom: it has maintained the volume of gas exported to the Old Continent, without increasing it, which has stressed all markets in a few days. To curl the loop, on the southern flank, relations between Morocco and Algeria are not going through their best moment and that also affects the price and supply of a key material for Spain due to its dependence.
Supply guaranteed?
The tension is of such caliber that the Foreign Minister himself, José Manuel Albares, has had to travel to Algiers this week to try to guarantee the gas supply. Because Spain imports almost half of its consumption from the other side of the Mediterranean, through the Medgasse which passes through Morocco. “I have received the guarantee of the gas supply from Algeria to Spain as well as the Algerian commitment to satisfy Spanish demand,” Albares said on Thursday. As of today, gas stores are below their usual levels. This week they were at 74% on average throughout the European Union. In other times, that ratio reached 100% at the doors of autumn and winter.
The energy companies and the government insist that this is a temporary situation. Temporary. That it is not forever. But they also coincide in pointing out, albeit indirectly, that the winter will be hard in terms of prices and tensions in the market. Gas futures (those that are now traded between investment firms) remain in the 90s and even rallies of up to 100 euros / MWh for several months. Only from the spring of 2022 is some moderation in sight. In fact, for the whole of next year the average price of gas that is now being negotiated is around 55 euros / MWh, practically half of what the records now show.
The complexity of a bill such as electricity cannot be explained solely by the rise in gas. This variable is the one that influences the most now, but the costs of CO2 rights are also rising. In this case, the last word in the market is the European Union, ready to accelerate the energy transition with this penalty for the pocket. As well as modifying a wholesale market that dates back more than two decades.
.