MADRID – With summer just around the corner and during the earliest heatwave in Spain’s history, electricity companies will open the floodgates of water reservoirs on Wednesday to generate energy.
They do so on the day the gas price in the combined cycles reaches a ceiling. It means that for much of that day, the energy entering the system will be hydroelectric. All of this is happening on the hottest day of the heatwave and summer is expected to be very dry right around the corner. The water reservoirs already contain relatively little stock, as we wrote earlier this week.
The Spanish water reserve is 48.2% of the total capacity. The reservoirs currently store 27,040 cubic hectometres (hm³) of water. That is a decrease of 449 cubic hectometres from last week, according to the latest data from the Ministry of Energy Transition.
This situation is similar to last year when, amid an increase in electricity prices and with reservoirs under severe pressure, Iberdrola decided to open the floodgates and generate electricity using hydraulic technology.
This fact prompted an investigation by the National Commission for Markets and Competition. Energy Transition Minister Teresa Ribera also expressed her disapproval of this.
The leading company in the sector, Iberdrola, has reduced the level of hydropower reserves by more than 30% in the third quarter of 2021 compared to the same period of the previous year, according to company figures.
Difference Between Actual and Market Price
On Tuesday, 17 out of 24 hours, the hydraulic technology of power generation marked a price between €177 and €183 according to data from the Spanish electricity company Omie. Energy sector sources indicate that the true cost of electricity generation is around €60-€65 per megawatt-hour.
Why the big difference? This is because the Spanish system is created through a matching process where the electricity generating companies and the marketing companies launch their offers every day for every hour of the following day. The balance between supply and demand determines the price. Cheaper energy sources, such as renewable energy or nuclear energy, have priority. And the most expensive, such as those generated in cogeneration plants or coal, enter the system last.
The final price paid for this energy to all plants is determined by the last supply to cover the demand.
More expensive electricity
This Wednesday, the price of the mix fell by 23% and went from €214 to €165 in 24 hours. Nevertheless, the fact that the extra costs that have to be paid to the combined cycle installations (gas) cause the costs per megawatt-hour to rise to €224 (more than 5%).
Demand for electricity increases due to heatwave
The Ministry of Ecological Transition explains that “the heatwave has increased demand by almost 80 GWh. In addition, there is little wind production (it has fallen to 78 GWh). Finally, gas-fired power stations will reach their maximum production of the past year, 373 GWh, tomorrow. As a result of these exceptional circumstances, the cost of the adjustment has increased to €59/MWh, bringing the total price to €225/MWh, still below what it would be without the mechanism, approximately €240/MWh”.