Electricity drops 23% in the wholesale market on the first day of application of the ‘Iberian exception’ | Economy

The first electricity auction after the entry into force of the limit on the price of gas and coal has ended this Tuesday with a daily reduction of almost 23% in the wholesale electricity market. The average price per megawatt hour (MWh) will go from 214 euros on average this Tuesday to 165 euros, according to data from the Operator of the Iberian Energy Market (OMIE). The most expensive section of the day will be between 12 at night and one in the morning, when it will exceed 194 euros per megawatt hour (MWh), while the least onerous will be between three and four in the afternoon, when It will be around 144 euros.

This Wednesday’s reduction —which will be noticed in the next invoice, which will arrive in July— is encouraging. But there are several important caveats. The first is of a temporary nature: to analyze the effectiveness of the measure, a period much longer than a single day will be required; we will have to wait weeks, or even months, to see the final impact of the mechanism on receipts. The second has to do with the starting point: although the gas cap may end up being a relief, until just a year ago prices above 100 euros per MWh were unthinkable. A graphic example: during the cold and snowy season of Filomena, in January 2021, when electricity consumption skyrocketed, 80 euros were reached. Today, war and fuel prices through, through, we are doubled.

The Government has promised that prices will drop by more than 30% in the wholesale market, and between 15% and 20% in the receipt of households that have a regulated rate (also known as PVPC), a time including fixed charges and tolls. The final impact of the mechanism on prices will depend on the price of gas (the cost of compensation will depend on it), the volume of gas that is necessary for electricity generation and the weight of renewables (the cheapest) on each day.

PVPC Incentive

In the short term, in any case, the incentive of many households to return to the regulated market will grow. A movement that would go in the opposite direction to the flight of 1.25 million clients from the PVPC to the free market last year, according to the latest data from the National Commission of Markets and Competition (CNMC).

The Executive trusts that this drop will also be transferred to the free market, in which the conditions are agreed between the electricity company and the final customer, and where prices are already —in many cases— above the PVPC. The doubts, however, are substantial: it will be necessary to see the willingness of marketers to review their catalog of offers if, as expected, the previous ones in the wholesale market fall. “It will not be easy for them to be the same or to be below the wholesale market price,” the third vice president and minister for the Ecological Transition, Teresa Ribera, told TVE on Tuesday.

He knows in depth all the sides of the coin.

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from 80 to 40

The cap on gas —which lowers the price of this fuel for electrical use from 80 euros per MWh to those listed today at 40— is an emergency measure that arrives, however, a month and a half later than initially planned. by the Government after a series of delays accumulated by the Spanish and Portuguese authorities (the two countries in contention) and, ultimately, the European Commission. Despite being incorporated into the Official State Gazette (BOE) since mid-May, the go-ahead from Brussels did not arrive until last Wednesday.

The difference between the quoted gas price and the one included for electricity price setting will be paid by the consumers themselves who, however, should benefit in net terms. Although to a much lesser extent than the Spanish and Portuguese, French households and companies will also get a cut, which will see the price of their electricity imported from the Peninsula reduced, which will now include an implicit subsidy from their Iberian peers.

The mechanism has a double expiration date: 12 months —a period that both the community authorities and the Spanish Executive consider sufficient to cover the expected volatility in the summer months (when the demand for air conditioning and tourism skyrockets) and , above all, during the winter (due to heating)—or until the Spanish Government comes up with a new method for calculating the regulated rate. That change, imposed as a condition by the Community Executive to grant its approval to the measure, forces the prices paid by the ten million households that are covered by the PVPC. The new scheme should be ready on October 1 to officially enter into force at “early 2023”.