The price of electricity has gone into a tailspin in Spain. The fall is not a one-day thing, but it was this Monday when the forecasts of the Iberian Energy Market Operator (OMIE) have placed for the first time at negative levels to the wholesale market or pool in Spain. This phenomenon, which had already occurred in other European countries and in the national (intraday) adjustment market, consolidates a trend that has had the sector on alert for months. Abnormally low prices, around zero, occur at more and more hours of the day.
The average daily market price was 20.3 euros per megawatt hour (/MWh) in March, almost 50% lower than in February and 77% lower than in March 2023. The curve has fallen throughout Europe, once the uncontrolled electricity crisis has been overcome, but Spain and Portugal have begun to show a downward trend. The average of pool in our country it is close to 69% lower than that of Germany and 62% lower than that of France. Portugal, very aligned with the home market, however, has not yet entered negative territory.
The situation has unleashed all kinds of rumors, from the fact that citizens are going to be paid for consuming electricity to the fact that the drop has been caused by the Iberian exception, a measure that died on December 31, 2023 and that had not been applied for a year. The paradox of pool Spanish is more complex and will not cause havoc immediately. Of course, its long-term effects give investors and authorities reasons to be on guard because, as the Minister for the Ecological Transition explained this afternoon, Teresa Ribera: “It’s good for the consumer, but it has a head and a tail.”
What caused the fall?
The OMIE forecast marked prices of -0,01 /MWh between 2:00 p.m. and 5:00 p.m. this Monday. This is an almost symbolic decrease compared to the values close to zero that have been reached in recent months, especially at specific times during daylight hours, when all photovoltaic offers converge. To this basic situation we must add the effect of Storm Nelson, whose heavy rains and gusts of wind have triggered the production of hydraulic and wind power, two of the cheapest technologies on the market. This, added to the fact that today is a holiday in many Autonomous Communities, which translates into less electricity demand, has led to this collapse in prices.
No free electricity or charge to turn on the washing machine
Daily market prices should not be confused with what the consumer ultimately pays. The first is sa component of the final invoiceto which we must add other regulated costs such as charges, tolls or taxes themselves (the VAT on electricity returned last month to 21% compared to the 10% to which the Government temporarily lowered it due to the electricity crisis).
Although striking, negative prices are a drop in the ocean. The -0.01 euros per megawatt have occurred in three of the 24 hours of a Monday whose maximum price will be 21.43 euros/MWh and whose average price will be 1.8 euros/MWh. It is only the first day of the month, so the impact on the monthly bill will be almost imperceptible, especially considering that according to the evolution of the daily market in 2024 and the future price quotes until the end of the year, the estimated average price of the Spanish electricity market is 55 /MWh37% lower than in 2023, according to the latest barometer of the Association of Large Energy Consumption Companies (AEGE).
Will it impact more on the free market or the regulated one?
For those who are in the free market, that is, who have agreed on a fixed rate with their marketing company, the collapse of the pool not impact your receipt at all. For those who are covered by the regulated rate or Voluntary Price for Small Consumers (PVPC), the effect will be minimal.
In January the new method of calculating the PVPC, a reform promoted by the Ministry for the Ecological Transition to reduce the volatility that had citizens in the regulated market in suspense. Paradoxically, this reform now implies that negative prices will have even less impact on the consumer’s pocket than they would have had with the previous model, although, in any case, the effect would have been very limited. This is because the new model reduced the weight of the daily price in the final calculation of the receipt, indexing the invoice to the futures market to provide it with greater stability.
Are energy companies selling at a loss?
No. The truth is that negative prices in the pool indicate that There are producers paying to generate energy, but this does not imply that they are selling it at a loss. Different experts consulted by this newspaper agree on the diagnosis. The producers that are offering their energy at negative prices are, for the most part, photovoltaic plants that still enjoy the primacy regime, that is, they receive a regulated remuneration for what they produce, the so-called Recore. As this remuneration does not take into account the price at which they are sold, but rather the volume of electricity sold, it is worthwhile for the solar plants under this regime to offer at prices below zero in the current conditions of renewable oversupply, in order to enter the market by displacing other competitors who cannot lower their prices so much. Afterwards, they collect the premium.
The electric… Always wins?
As the large electricity companies recalled when the Government tried to intervene in their prices in the toughest moments of the energy crisis, around 80% of the energy generated by the sector’s giants is already sold in advance at fixed prices. These forward agreements or PPAs are a shield for these companies, but there are caveats. Some PPAs include clauses that allow the client break the agreement and buy the electricity on the market when the pool is in negativeaccording to industry sources.
This collapse of the wholesale market, if repeated repeatedly over time, could end up having an impact in the medium and long term on the business of large and small electricity companies, since it is an abnormal scenario that generates a lot of uncertainty in both the seller and the seller. as in the buyer. “If now the PPAs are being signed around 40 euros/MWh, when they are renegotiated for a large industrial company it will be very difficult to justify to its investors the renewal of a contract at those prices when the market is marking negative or close values. to zero at many hours of the day,” explains a source. In short, the price curve could end up hindering forward contracting.
Does it also happen in Europe?
The sources consulted assure that electricity episodes at negative prices have already occurred in other European countries, such as Germany or Holland. This phenomenon of prices tending towards zero due to a massive entry of renewables draws what is known among technicians as the duck curve and bending it is a key battle to ensure the profitability of renewable investments.
This is the cross to which Vice President Ribera has referred. “What we have been seeing in recent months and weeks is how the percentage of renewable electricity continues to grow in our country, with average prices much lower and, at certain times, extraordinarily low. This is good for consumers, but We also (…) need a very significant investment sustained over time to complete this transformation of our energy system. And zero prices, if they occur too often, They do not leave margin or disrupt investment plans and recovery of the investment that investors have,” the minister diagnosed.