The Government can cut the extra benefits of the new electricity contracts | Economy

Beyond the measures, the multiple options on the table, that the European Council, which is being held today and tomorrow in Brussels, is going to approve to alleviate the effect of the escalation in electricity prices on consumers, the Spanish government (and the rest) have an ace up my sleeve: reduce the extraordinary profits or winfall profits that the electricity companies are receiving for internalizing the exorbitant prices of natural gas in the price of electricity, also in the bilateral contracts subsequent to the price increase, for which they have the permission of the European Commission.

The government of Pedro Sanchez excluded bilateral contracts (between a supplier and an end customer) and bilateral intra-group contracts (between a generator and a supplier of the same business group) in RDL 21/2021 of last October, which corrected another controversial RDL from September, which establishes the reduction of the wind fall of gas in the wholesale market and, therefore, exempted fixed-price forward contracts. However, the communication Toolbox II that Brussels approved several weeks ago allows to reduce the extraordinary profits of all the contracts signed after the crisis broke out and that internalize the price of gas.

Thus, according to Annex II of said communication, regarding the application of fiscal measures on inframarginal benefits (that of energies that do not set the marginal price but benefit from the most expensive one, which sets gas, such as nuclear, hydraulic and renewable ), “Member States may exceptionally decide to adopt fiscal measures aimed at capturing part of the profits obtained by certain electricity producers”. This “would partly prevent the current high gas prices from increasing the costs borne by final consumers”, he adds, and “would preserve marginal prices efficient wholesalers of electricity necessary for efficient distribution and market coupling in the single European market”.

Brussels links its recommendation to the energy crisis due to the war in Ukraine and makes it clear that it cannot be retroactive, indicating that “it must take into account that producers may have sold part of their production at a lower price before the beginning of the crisis. By requesting that the “energy that has not benefited from the increase in the prices of the pool because it had already been sold (before) in term”, leaves the opposite open: recovery can be applied to those who have sold forward after the rise in prices who have internalized the (short-term) gas prices.

Electric companies insist that they do not charge windfall profits because they do not sell their energy in the pool and have all or almost all of it bilateralized. Although, following the reasoning of Brussels, this is true in the case of bilateral contracts prior to the crisis, it is not necessarily so for new contracts, which have been or are being renewed at very high prices, in line with or above the pool.

Millions of contracts

The reduction RDL imposed on companies the obligation to deliver, under a sworn statement, their contracts to the system operator, REE, to verify that the demand matches the offer. Now the contracts are being investigated by the CNMC, which must check whether gas prices have been internalized in them. your number over ten millionsince only Endesa has delivered five million.

At the moment, the reduction, according to the October rule, is limited to non-bilaterals, so the collection is being almost testimonial (100 million euros). But if the Government chooses to modify it to follow the recommendation of the Commission and apply the cut also to post-escalation bilaterals, the situation would change drastically. The electricity companies are offering domestic rates between 0.24 euros kWh to 0.40 euros kWh or, what is the same, at 240 euros MWh or 400 euros/MWh, well above the pool.

In any case, showing that part of the contract derives in an extra profit from the gas is very complicated, according to the technicians, since gas has a structural price, combined cycle plants pay emission rights, and defining in a contract which part is an extra income is difficult to verify, although a draft communication from Brussels on state aid give some guidance.

For the time being, the electricity companies trust that Brussels, which they are pressuring, will allow a simpler solution that is in accordance with their interests: offset the costs of the gas plants so that their offers in the pool go down and/or do not mark the marginal or this is lower, which would have a chain effect in lowering the price. At this point, the problem is who pays the compensation. They propose that the consumer. The Government goes further and maintains the option of setting a limit price to the wholesale market, which companies do not want to hear about.

Exceptions for the Iberian electricity market?

The options included in the communication published yesterday by the European Commission to temporarily alleviate the consequences of the serious energy crisis that Europe is experiencing is so broad that it highlights the disparate positions of the partners. Such an extensive menu could lead to à la carte solutions for each country or group of countries.

And what is good for some is bad for others. Thus, while Germany fears a supply problem, which it wants to alleviate by filling gas stores, Spain’s problem is one of prices, so an accelerated supply of gas drives up the price and aggravates the situation.

Mibel. Spain and Portugal, united by Mibel, defend the option of untying the price of gas from the pool by any means. But a drop in prices on the Peninsula would cause export pressure on France. To avoid this, it could be allowed to temporarily cut the interconnection through the Pyrenees, which barely accounts for 7% of electricity.

The President of the Government, Pedro Sánchez, is going to request a framework that allows those countries that wish to act. To do this, he will argue that Spain and Portugal, interconnected with each other, but which can be considered as an energy island, should not be penalized now by the lack of interconnection.

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