Friday, July 1

The heat wave and the greater generation with gas counteract part of the effect of the Iberian solution to lower light

The heat wave and the greater generation with gas are counteracting part of the effect of the Iberian solution to lower the electricity bill. The measure was released last Tuesday with a smaller fall than expected by the Government.

This Friday, on the last day of this anomalous heat episode for the month of June, and with gas once again shooting up, the main beneficiaries of the Iberian exception, users with the PVPC regulated rate, are going to pay for energy 266 .38 euros per megawatt hour (MWh), 2.8% more than on Thursday, taking into account the compensation that must be paid to the combined cycle plants for the gas cap.

The rise occurs after the wholesale market price (not counting this compensation) has risen 4.2%, to 177.9 euros / MWh. To this figure must be added the payment to gas generators, which has stood at 88.48 euros, practically the same as on Thursday. All this, in a context of strong tensions in the European markets due to the sharp rise in gas prices. In France, the wholesale electricity price will go above 303 euros/MWh, in Germany it will exceed 255 euros/MWh and in Italy it will be 327 euros/MWh.

The Ministry for the Ecological Transition defends that, in the absence of the mechanism, whose correct application is being supervised by the CNMC, prices in Spain would have risen to around €300/MWh, “which demonstrates its effectiveness in reducing the price of electricity, limit the windfall profits of electricity companies” and function as a “firewall” against high gas prices.

In Spain, users in PVPC will pay those 266 euros in a few days of record use of combined cycle plants (which burn gas) due to low wind energy production: on Wednesday, the demand for these plants reached 764 gigawatt hours (GWh) , surpassing the record of 754 GWh reached on June 20, 2008, according to Enagás data. The heat wave causes a lower performance of the photovoltaic panels and the electricity demand goes up due to the greater use of air conditioning equipment. To this has been added a shutdown for refueling at the Trillo nuclear power plant that has taken longer than expected.

In any case, the fundamental key to this adverse environment is the price of gas and the high use of cycles. The price of this fuel is skyrocketing again, after the announcement by the Russian Gazprom to reduce supplies by 40% through the gas pipeline to Europe, Nord Stream, and after the failure of one of the main natural gas liquefaction plants. liquefied from the United States, which has become the main supplier of Spain.

Thus, the reference of the Iberian market Mibgas stands at 106.94 euros/MWh for this Friday, 9.6% more, while the European TTF has shot up this Thursday above 148 euros/MWh, its maximum since March , a few days after the Russian invasion of Ukraine.

Despite all these adverse elements, the Government defends that the mechanism is “cushioning the blow” of the rise in energy prices. And various energy experts consulted corroborate this.

The consultant Francisco Valverde, director of Renewables at Menta Energía, believes that the Iberian solution “is working”, although he asks for time to evaluate it and makes it clear that it has started in a more demanding context than the one the Government took into account to do their savings estimates: with the system “at the limit”, due to the low contribution of renewables as a result of this heat wave, and a gas price “which in three days has become unbearable”.

“Everything that could go wrong so that many people would say that this is a failure has gone wrong,” says Valverde, who stresses that “we will not know what would have happened” if this measure had not been implemented. He is clear that “everything would have been much worse.” For this reason, he asks to give it time and “a bit of travel”: “For what happens one day, two or a week, you cannot judge if it works or not”.

“Prices are rising less than they would without the mechanism,” explains Javier Colón, manager of the consulting firm Neuro Energía, who adds that with gas rising “by machete” it is “complicated for the price to fall,” due to the strong use of cycles these days.

“Next week, in principle, temperatures will drop and things will be better,” says Colón. Looking ahead to winter, “if gas is put at 400 euros/MWh” and there is little production from the cycles (for example, due to high wind generation), the price will be much lower than before this measure was implemented. However, Colón points out that the design has not been the one originally announced. Among other things, because the limit finally accepted by Brussels (48 euros/MWh, on average, for just under a year) has been lower than the 30 euros originally proposed by Spain and Portugal.

While in some sectors they have already rushed to label this unprecedented measure a fiasco, started after a long negotiation with the European Commission and Portugal and described as “historic” by the Spanish Government, the electricity employers’ association aelec, contrary to the cap on gas , has acknowledged that he expects the cost reduction results “to be greater, once these circumstances are over”.

“Coming soon”

And this Thursday the Fedea think tank published a note of his expert Diego Rodríguez, professor at the Complutense University and former counselor of the National Commission of Markets and Competition (CNMC), who points out that “it is too early to evaluate a measure designed to have effects over a year based on only in a price reduction of around 5% or 6%”, as registered on the first day of application.

But Rodríguez believes that some conclusions can already be drawn. On the one hand, the initial impact “has been positive but modest”, something that he attributes “in part” to the fact that its premiere “coincided with a moment of high thermal gap”, that is, a high contribution from combined cycles, “along with with a peak in demand as a result of an abnormally high average temperature for this time of year”.

“Both circumstances have led to a higher-than-expected market price and, also, to a higher-than-expected surcharge to finance the gas subsidy. However, it must be remembered that the circumstances of these days are not extraordinary, but very frequent in the months of July and August, where precisely the operation of combined cycle and coal power plants is usually high”, warns Rodríguez.

The Fedea expert, who emphasizes that this “subsidy” or gas aid “must be paid”, believes that “probably” the minor reduction in the bill at its premiere is “a circumstantial phenomenon”. But he also considers it plausible that the final price reduction forecast estimated by the Government, of 15% -20%, is “too optimistic”.

Among other things, because “the increase in demand is not only produced by high temperatures, but there is also a structural effect derived from the greater external demand that the mechanism itself induces.” Rodríguez maintains that the increase in demand has required the less efficient cycles to come into operation, “a route that has probably been underestimated” by the Government.

And “the adjustment mechanism itself generates an increase in demand, in this case foreign demand”, especially from France, “which leads to a higher price” because it implies the entry into production “of more inefficient plants, that is, , with more expensive sales offers”.

Rodríguez believes that “a probable effect of the measure is that it increases the incentives for domestic consumers to move from the free market to the regulated market.” And he points out that “it is to be expected that, although the initially planned reduction of 15% or 20% of the bill is not achieved, the mechanism does generate reductions greater than those initially observed.” Finally, he warns that the so-called Iberian solution is going to translate into more emissions from the electricity sector, the results of which, “which have already been very negative over the course of the year, are going to get even worse.”

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