The Government’s shock plan to reduce electricity and gas, given the incessant succession of records in the wholesale electricity market, plans to temporarily cut 2,600 million euros to electricity companies due to the extra benefits received by certain generation technologies that, according to the Executive, are benefiting from the spectacular escalation of gas in international markets. The objective is to lower the average consumer’s bill by 22% until the end of the year, as explained by the third vice president and minister for the Ecological Transition, Teresa Ribera, at the press conference after the Council of Ministers.
The price of electricity breaks another record and soars to 172 euros / MWh pending the Government’s shock plan
The package, which will also freeze the regulated natural gas tariff for the next two quarters, seeks that the current energy crisis in Europe, which is leading the Member States to adopt different safeguard measures, does not threaten the recovery after the pandemic. And it seeks to materialize the promise of the president, Pedro Sánchez, that consumers pay this 2021 in light the equivalent of 2018, discounting the CPI. This, according to the Government’s calculations, would place the annual bill of a typical user (4.1 kilowatts contracted and a consumption of 2,500 kilowatts per year of consumption) at around 600 euros.
According to Ribera, with these measures “we are not going to see a reflection in the evolution of the wholesale electricity market”, which this Wednesday is going to beat the umpteenth record of this year and depends on variables that are “outside” the capacity of action of the Government. Ribera has insisted before the EU “on the importance of giving a coordinated response at the European level” to respond to “the upheavals” of this moment. “It is a problem that is viewed with enormous concern by economic actors and governments.”
Ecological Transition ensures that, faced with this extraordinary situation, the effort will be shared “among all.” And an important part will fall on the large electricity companies, which this Tuesday, before knowing the details of the measures, already suffered notable falls in the Stock Market, especially Endesa, fully exposed to the Spanish market.
The cut, which according to Ribera is going to be carried out “respecting the profitability of the companies”, is going to detract from them the extraordinary benefits they receive from the rise in gas. It will be applied temporarily, until March 31, when the upward spiral that hits the price of this raw material is expected to subside. Until then, the Executive will subtract the extra income it estimates that the generation technologies that benefit from this situation receive (basically, nuclear and hydroelectric plants): about 2,600 million, at current prices, although the remuneration reduction will be proportional to the price of the Iberian Gas Market (MibGas) in the coming months.
These funds, and another 900 million from the extra collection obtained by the State from the CO2 emission auctions, will be used to temporarily reduce the so-called electricity system charges by 96%. With this, the regulated part of the bill will be reduced by almost 50% for domestic and SMEs and between 40% and 25% for the industry, according to the forecasts of the Teresa Ribera department. Ecological Transition ensures that the measure, which the PP has already described as “expropriation”, respects European and Spanish regulations because it does not alter the marginalist design of the electricity market required by the EU, in which the last power plant that matches supply and demand determines what they all charge.
The vice president, asked about the possible legal recourse of the companies, has trusted that the affected companies “understand that these are exceptional measures at exceptional times.”
This measure is independent of the cut already proposed to the extra remuneration that these plants receive for the rise in CO2, which is being processed in Congress and will mean another cut of about 650 million to the electricity companies, which would raise the total cut above the 3,200 million. In the case of CO2, the electricity companies have threatened to advance the nuclear blackout because they say it makes this source unviable. In this case, it is a structural measure, together with the fund to remove the premiums for renewables from the rate, which this Monday passed its first process in Congress.
The decree approved this Tuesday also includes the temporary tax reductions of the invoice already announced: the extension until December of the VAT reduction to 10% for households, the suspension of the generation tax of 7% and the reduction to the limit that allows Brussels (with a 90% discount, until the rate is 0.5%) of the 5.11% Electricity Tax. The collection of this tribute (about 1,400 million a year) is assigned to the Autonomous Communities. The government should compensate them for this.
The gas escalation will also lead the Executive to stop for two quarters the rise in the regulated tariff for natural gas, which has about 1.5 million supplies. The average increase in the three bands of the last resort tariff (TUR) in the next quarterly review, on October 1, will be 4.6% (between 4.4% and 5%, depending on consumption ), instead of the 29% that would correspond to the evolution of the raw material, “outside the capacity that many consumers have,” according to Ribera.
The amounts owed will be passed on in subsequent reviews, with a “buffer mechanism” similar to that for butane. Last resort traders (CUR) will have to temporarily finance the difference. The amounts owed will be passed on in subsequent reviews. In March 2021 (latest data available) there were 6,412,454 customers of gas supplied at free price (80.23% of the total) and the remaining 19.77% (1,579,821 customers) were in the TUR, according to the CNMC.
Along with these measures, the Executive has approved other permanent ones: the new minimum vital supply that extends the prohibition of cutting off electricity service to severe vulnerable consumers for a further six months (ten in total), while guaranteeing a “minimum supply comfort “with a power of 3.5 kv; and the launch of the announced forward energy auctions by which the large companies in the sector will be obliged to cede part of their energy to independent traders and large consumers, in order to reduce the weight of the wholesale market in price formation.
The first auction, “a new electricity pricing model,” according to Ribera, will be held before the end of the year with approximately 6.3% of last year’s national demand, some 15,830 GWh. Iberdrola, Endesa, EdP and Naturgy will be obliged to sell their energy and a reserve price will be established at the proposal of the CNMC based on generation costs.
The decree also provides for the reform of the regulated electricity tariff – the voluntary price for small consumers (PVPC) – so that it incorporates the price reference of that auction with a maximum weighting of 10%.
Added to this is the announced reform of the Water Law to, according to Ribera, guarantee a “rational use of the resource” and avoid sudden drainage of the swamps after the shocking images seen this summer of record prices of electricity, “which they have all made us ashamed. ” At the beginning of each hydrological year, the hydrographic confederations will establish a minimum and maximum regime of monthly flows to be discharged in reservoirs greater than 50 Hm3, both for situations of hydrological normality and prolonged drought, as well as a regime of minimum volumes of reservoirs impounded. for each month.
The ministry acknowledges that the evolution of the gas markets is “worrying” due to the current mismatch between supply and demand, which may continue until the beginning of spring, and the low levels of storage in Europe after a colder winter and longer than usual. For this reason, it will soon increase the requirements in equivalent days of consumption that are established on the marketers. “We want to avoid a situation that, beyond high prices, could pose a risk to the security of supply,” they point out in the Ecological Transition.