The electricity bill gives a scare again. The average price of electricity in the wholesale market will rebound strongly on Wednesday – 17.77% compared to the previous day – to 105.4 euros per megawatt hour (MWh). After the small relief of the weekend and the notable drop in electricity on Monday, the cost of energy again exceeds 100 euros MWh, according to data from the Iberian Electricity Market Operator (OMIE), which manages the markets electricity companies from Spain and Portugal.
By time slots, the price will range between 126.84 euros / MWh that will cost between ten and eleven at night, and 83.99 euros that will be paid between five and six in the morning. The relief of the last days has not lasted in time, as predicted by the experts, who consider that these high prices (at historical levels) will remain for a few months. A significant decline is not expected until at least next spring, as the natural gas futures market does not expect a reduction in value until then.
The political battle that unleashed last week around the upward spiral in electricity has also relaxed since last Friday. Although this new rise threatens to reopen the ban. The price set by the wholesale market has a direct impact on what the 10.6 million consumers who are in the market regulated by the State, known as PVPC, pay. The rest, some 16.2 million that are in the free market, will also see their bill increased, although they will do so later, since the closed offers of the marketers vary depending on the evolution of the wholesale market.
The Government has so far tried to stop the rise in the price of electricity with a VAT reduction from 21% to 10% on the electricity bill and the temporary suspension in the third quarter of the tax on electricity generation (7%). However, this relief has already been almost exhausted by the push in the price of electricity since then which has eaten up around two-thirds of the savings. The rest of the Executive’s measures in process will only have a medium-term effect. The reasons for the rise in prices are already known: a very expensive gas in international markets, above 40 euros per MWh, while the European market for CO₂ emission rights is also pushing upwards, exceeding 55 euros per ton, double that in 2020. As detailed by the Bank of Spain in a recent report, half of the rise in electricity prices is explained by the price of gas and another 20% is due to emission rights.
Criticisms of the pricing system
The Executive has sought in recent months other reasons for the rise in prices in a context in which the opposition demands forceful measures as soon as possible. The Government, in addition to blaming the previous Executives of the PP, has also pointed to the configuration of the electricity system. But Brussels has responded forcefully: the current pricing system is the most efficient and is not going to change the rules of the game.
The pool Electricity works through an algorithm designed on a European scale by which energy sales offers are ordered from the cheapest to the most expensive (those that use fossil fuels such as gas). The crossing with the purchase offers sets a different price for each hour of the day, to which all the plants participating in the bid are paid. In other words, the price is marked by the latest technology that comes in, the most expensive. In this way, the higher the demand, it will be more complicated than only with renewables and nuclear energy it will be possible to cover all the energy needs. If you get it, the price will be low. But if you can’t, your electricity bill will be more expensive. Something that is repeated whenever there are extreme weather events, such as the storm Filomena in January or the heat wave of last week, which caused an increase in demand.