The average price of electricity in the wholesale market will reach its historical maximum on Monday with 106.74 euros per megawatt hour (MWh), exceeding the 106.57 euros per MWh on average on July 21. According to data from the Iberian Electricity Market Operator (OMIE), which manages the electricity markets of Spain and Portugal and determines the price for the following day each day, the amount for this Monday will almost triple that of the same day of the year last. On the second Monday of August 2020, the average price of electricity was 38.09 euros per MWh. By time slots, the maximum price for tomorrow will be registered between 10 p.m. and 11 p.m., with 114.07 euros per MWh. The minimum is expected between 5:00 p.m. and 6:00 p.m., with 97.95 euros.
The week will thus start with a new all-time high, on the path set by the first days of August and after July was the most expensive month in history, with an average of 92.4 euros per MWh. The wholesale market is where electricity producers match their offers for the next day and prices are set for each time slot. Their prices impact almost a third of the bill paid by consumers (the rest are taxes and other fees), particularly in those covered by the regulated rate (the Voluntary Price for Small Consumer or PVPC), which is about 10 million homes in Spain. For the 17 million consumers in the free market, it also has an impact in the long run because the offers launched by operators also depend on the evolution of the wholesale market and future forecasts.
The Government has 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, it has not been able to stop the growth of the price of electricity in the wholesale market, at unusually high levels at this time due to gas prices and carbon dioxide emission rights. The price is different every hour of the day because it is determined through an algorithm in which the sales offers of the producers are ordered from the cheapest to the most expensive and are matched with the purchase orders (that is, with the demand). But the final price is determined by the most expensive offer, which causes the price to fluctuate a lot depending on whether it is necessary to use energy sources that use fossil fuels (the most expensive) or not. That causes the so-called benefits fallen from the sky that they receive nuclear and hydroelectric, since they generate cheap electricity, but they see it rewarded at the price of the most expensive.
A year of high amounts
To avoid these distortions, the Executive has proposed to cut these benefits by law and has even proposed a market reform to Brussels. However, these are measures that will not have an impact for some time. In the short term, prices are expected to remain at historically high levels for the remainder of 2021. Gas prices, used by combined cycle plants, have more than tripled this year compared to last year. And at the same time, the European Union withdrew CO₂ emission rights to advance on the path of decarbonisation, which has meant that the existing rights have been exceeding 50 euros per ton for three months.
Until this August, 2021 is already the year with the most expensive electricity, surpassing 2008. At the beginning of the year, as an effect of the storm Filomena, the day with the highest average amount in history has already been registered. That mark was beaten again in July, in which, in addition, several days they entered the first positions of the most expensive classification. And now it is overcome again in August, which has followed the same path of the previous month. In July, according to estimates by Facua, the average bill for consumers under the regulated tariff was 77.9 euros. It did not exceed that of June due to the effect of the VAT reduction, but it was the third highest in history, according to the calculations of the consumer organization.