The false idea that electricity is ‘cheap’: the price is still double what it was before covid

Update Post: December 9, 2023 9:32 am

The energy context remains volatile and therefore the price of electricity. It is true that there has been a rather abrupt drop compared to last year, when never-before-seen figures were reached, but nothing could be further from the truth. For reference, the average price in the wholesale electricity market (‘pool’ in the jargon) in Spain between 2011 and 2019 was below 50 euros per megawatt hour (MWh) and it is from here on that The anomalies began.

Currently, after more than a year and a half since Russia’s invasion of Ukraine and when the market even exceeded 540 euros/MWh, the average Spanish electricity price is around 90 euros/MWh (from January to October), The lowest among the large European economies, but very far from pre-pandemic normality, which has established a kind of ‘calm’ in the sector and a false idea that electricity is ‘cheap’. This argument is reinforced by the numerous hours in which electricity has zero cost in the pool.

However, the sector warns that this is a consolation for fools and that high prices should not be normalized and the anecdote of a low price during very specific hours should not be celebrated. “There is a false feeling that energy is cheap. The price is much lower than in 2022 and 2021, but it is still twice as expensive as in 2019. As we are better than last year, there is a feeling that it is “It has deflated, but it is not true. We have normalized high prices, and since they are not very high we are satisfied, right? And this should not be like this,” says Esther Morlanes, general director of Alterna Energía, in conversation with La Información.

Summer 2021 marked the turning point

Oriol Saltó i Bauzà, Associate Partner of AleaGreen (AleaSoft), highlights that despite so far in 2023, prices have fallen by 45% compared to the previous year, they are still 91% above prices between 2011 and 2019. , almost double. It should be noted that in 2020, with the covid-19 crisis, which led to a drop in electricity demand, prices fell to 34 euros/MWh. It was from the summer of 2021 when tensions in the international gas and CO2 emission rights markets contaminated the ‘pool’ and exorbitant prices began day after day.

The geopolitical situation with Russia, which is Europe’s main gas supplier, caused gas prices to rise at an unprecedented rate amid fears that it would cut off the tap and cause supply problems. “The rise in gas prices dragged down the prices of electricity markets throughout Europe. In Spain, the average price in 2021 reached 112 euros/MWh, an increase of 230% compared to 2020. In 2022, in Climax of the energy price crisis, the average price in the Spanish electricity market rose to 168 euros/MWh, an increase of 50% compared to 2021, but 250% higher than the prices between 2011 and 2019”, Saltó i Bauzà stands out.

OMIP forecasts set the price of electricity in the wholesale market at around 100 euros/MWh for the first quarter of 2024. Under this scenario and with Brussels urging the withdrawal of extraordinary aid, the electricity bill would increase between 15% and 20% for consumers with a regulated tariff (about 8.5 million homes) if the electricity tax reduction is not extended.

“The false feeling (that electricity is ‘cheap’) comes from the fact that we now have greater volatility in hourly prices, even oscillating between extremes in the same day depending on whether or not there are renewables. Peak hours and most The night continues to be marked by manageable technologies with a higher variable cost (the case of gas), while the daytime hours that are not peak are dominated by photovoltaic-type renewables. Better use of hydraulics, there will not be a sustained reduction in the time of prices,” explains economist and financial analyst Javier Santacruz.

“We have almost everything left to do in Europe in the energy transition to ensure that prices drop in a sustained manner”

The director of Catalan public energy, Daniel Pérez, expresses himself along the same lines. “Electricity is more volatile. We have hours with high coverage of renewables, in which zero energy becomes news. But we have many other hours of prices still higher than 100 euros. I still remember the headlines during the storm Filomena that occurred They were scandalized by prices slightly higher than 100 euros. After exceeding 500 euros one day in March 2022, we have already gotten used to it. But the reality is that prices are still expensive on average, and that we have almost everything left to do in Europe “in the energy transition to ensure that prices drop in a sustained manner,” he says.

It must be clarified that the fact that hours are recorded at zero euros in the ‘pool’ does not mean that electricity is free for a consumer covered by the regulated tariff, since they have to assume a series of fixed costs that are, mainly , the contracted power, the access toll, equipment rental, renewable energy incentives and remuneration to Red Eléctrica de España and the electricity market operator (OMIE). For example, we imagine that today the price of electricity is at zero euros between 2:00 p.m. and 3:00 p.m., since you would still have to pay around 2/3 cents per kilowatt (kWh).

Unless the gas drops excessively, the light will remain high

For his part, Óscar Barrero, partner responsible for consulting in the area of ​​energy and utilities at PwC Spain, warns that the price of electricity will start high as long as the price of gas does not fall. “It is still almost double the historical average and while the combined cycles continue to operate, the price signal is set by gas. Unless gas falls or there is an excess of renewables (hydro and wind) the price will remain high. What “It is the structural change that has happened,” he points out.

From the ASE Group they show that the imbalance caused in the price of gas by the suppression of Russian pipeline supply has not yet been overcome. “Although at this moment European gas reserves are high, there has been a structural reduction in demand and there are good supply prospects (with the recovery of Norwegian gas pipelines and French nuclear generation). This is a precarious balance , which is easily altered and prices are in a high range, something that could correct in the coming weeks (depending on events)”, they add.

More moderate November

So far in November, Spain has recorded the lowest electricity price in Europe (and not because of the ‘Iberian exception’, as happened last year, but because of the strong renewable contribution). As of November 20, the average price for this month stands at 55.47 euros/MWh, which is 27.11% below the French price (76.10 euros/MWh) and 31.5% below the German price ( 80.95 euros/MWh).

“The price of electricity becomes news when increases occur and especially if they are maintained over time. The first half of 2022 was a clear example of this. It has been a long time since news programs have been published with the price of MWh. Electricity is not cheap, it is simply returning to price levels prior to the energy crisis that we experienced after the start of the war,” says Sara Herrero, professor at EAE Business School.

Source link

November 21, 2023 6:28 am