The price of electricity rises 3.2% in the wholesale market despite the cap on gas

The average price of electricity in the wholesale market will rise 3.2% this Thursday compared to this Wednesday, reaching 170.81 euros/MWh, according to provisional data from the Iberian Energy Market Operator (OMIE). ). The second day of application of the Iberian exception to limit the price of electricity generation with natural gas results in a slight increase in price, after registering in its debut a lower fall than expected by the Government.

A saving of 15% and the promise to reform the regulated tariff: questions and answers about the gas cap

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The measure has been launched in a very adverse context, which has resulted in prices of the so-called pool for now higher than the 130-140 euros/MWh that the Executive estimated that it would promote. The so-called Iberian solution has started in the worst heat wave for a month of June in the last two decades. This implies a greater demand for the use of air conditioning equipment, lower wind energy production and less photovoltaic generation, due to the effect of heat on the plates, which reduces their performance. The result is an intensive use of gas generation.

Added to this is the fact that a nuclear power plant (Trillo) has extended the shutdown it had planned (for now its start-up is delayed one day) and rising gas prices, affected by the announcement by the Russian Gazprom that it is going to reduce supplies to Europe and due to an accident at one of the main liquefied natural gas (LNG) plants in the United States. Thus, while in Europe the most used reference in the gas market, the Dutch TTF, has exceeded 100 euros/MWh for the first time in a month this Wednesday, that of the Iberian Mibgas market shoots up almost 22% this Thursday. , up to 97.54 euros/MWh, compared to the cap of 40 euros set by the mechanism.

The Mibgas is the reference that is taken into account to calculate the compensation that, once the gas cap is applied, is paid to the plants that use gas to generate electricity, and that is charged to consumers who benefit from the measure. The wholesale market price does not yet take into account this adjustment that is applied to compensate electricity companies for the real price of natural gas, and OMIE publishes it later.

On Wednesday, that compensation was close to 60 euros. Added to the wholesale price, it resulted in a cost for consumers with variable price contracts (such as the PVPC regulated rate) of 225 euros/MWh. This represented a saving of around 6% compared to the price that, according to the Government, would have resulted without the Iberian mechanism (about 240 euros/MWh), less than the 15-20% drop forecast by the Executive.

On Wednesday, the vice president for the Ecological Transition, Teresa Ribera, defended on TVE that "even in extreme scenarios like this, the price is below what we would have had to pay" without the gas cap. "Obviously we would have liked a lower price, but the price in Spain is significantly below the price in France or the price in Italy."

His department highlights that Spain marks the cheapest price in Europe this Wednesday, except for some Scandinavian regional markets. "Thanks to the gas cap to reduce the price of electricity, the €165/MWh in Spain is far from the €233/MWh in France or the €250/MWh in Italy."

Prices typical of a global energy crisis that has led to the fact that in Australia, the energy regulator has taken an unprecedented decision this week: the control of the national electricity grid to avoid excessive price increases and avoid blackouts, at a critical moment for the shutdowns for maintenance of several thermal power plants in the middle of a cold wave, in a country that covers more than half of the electricity demand with coal.

long negotiation

The Iberian cap mechanism was authorized last Wednesday by the European Commission, after a long negotiation, and validated a day later by the Congress of Deputies. It will be in force until May 31, 2023. The Royal Decree-Law establishes that the mechanism to limit the price of gas for electricity generation will be at an average of 48.8 euros/MWh during the next year. The limit will be lower in the first six months of application: 40 euros/MWh. Then it will go up at a rate of 5 euros/MWh each month.

The measure, described as "historic" by the Government, after a long negotiation with the European Commission, is intended to be a kind of shield to protect consumers from what may happen in the coming months with the price of natural gas, as a consequence of the war in Ukraine. Its objective is to prevent the price of gas from continuing to contaminate the prices of the wholesale electricity market.

The cap does not mean that gas plants have to operate at a loss: the difference between the real price of the raw material and the Iberian cap will be charged against the electrical system. The compensation will be paid by consumers, who will however notice a net saving on their bill. Brussels calculates that the measure will cost 8.4 billion euros, of which 6.3 billion will correspond to Spain and 2.1 billion to Portugal.

The savings on the bill will depend on the price of natural gas in the coming months and other factors such as the contribution of renewables, which make the wholesale market cheaper. But the Government affirms that the reduction for Spanish consumers will be between 15% and 20% with respect to current prices, less than the 30% initially calculated. The reason is that, in the negotiation with Portugal and Brussels, it was agreed that the contracts not linked to the wholesale market would not have to initially finance the compensation to the electricity companies for the cost of gas, and that they do so as they come due. those contracts.

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