MADRID – The Spanish wholesale electricity market recorded an average electricity price of 106.74 euros per megawatt-hour, (MWh). This surpasses the old record of 106.57 euros per MWh set on 21 July.
According to data from the operator of the Spanish and Portuguese electricity market OMIE, which every day sets the price for the next day, the price on Monday will almost triple compared to the same day last year. On the second Monday of August 2020, the average electricity price was €38.09 per MWh. As for the time slots, the maximum price on Monday will be calculated between 22:00 and 23:00, at €114.07 euros per MWh. The minimum is expected between 5.00 pm and 6.00 pm, at €97.95 euros.
New electricity record
The week starts with a new record, following the high prices during the first days of August. Furthermore, July was already the most expensive month in history, with an average of €92.4 per MWh. In the wholesale market, electricity producers coordinate their bids and set prices for each hour of the day.
Prices affect almost a third of the bill paid by consumers (the rest being taxes and other charges). Especially affected are those who pay the regulated tariff for small users, or PVPC (Precio Voluntario para el Pequeño Consumidor). This amounts to about 10 million households in Spain.
Furthermore, this will have long-term implications for the 17 million consumers in the free market. Because operators’ offers depend on the development of the wholesale market and future forecasts.
The government has tried to curb the escalation of electricity prices by reducing VAT from 21% to 10% on electricity bills. And also temporarily suspending the tax on electricity generation (7%) in the third quarter. However, it has not succeeded in slowing down the increase in the price of electricity on the wholesale market. It is unusually high for the time of year due to gas prices and carbon dioxide emission rights. The price changes every hour of the day because it is determined by an algorithm in which the producers’ sales offers are ranked from cheapest to most expensive and linked to demand.
The most expensive supply determines the final price. Therefore, this means the price fluctuates greatly with the use of fossil fuels, which are the most expensive. This leads to profits for nuclear and hydroelectric power plants that generate cheap electricity but receive the most expensive tariff.
A year of historically high prices
In order to prevent these constructions, the government has proposed to limit these profits by law and has even proposed a reform of the market to Brussels. These measures will only take effect in a while.
Meanwhile, in the short term, prices are expected to remain at historically high levels for the rest of 2021. Gas prices, which are used by combined cycle power plants, have more than tripled this year compared to last. At the same time, the European Union has withdrawn CO₂ emission allowances to achieve a low-carbon economy, leaving existing allowances at more than €50 per tonne for three months.
This month already makes 2021 the year with the most expensive electricity, even more expensive than 2008. At the beginning of the year, due to the Filomena storm, the day with the highest average price in history was recorded. This record was broken again several times in July, a trend that also continued in August. According to estimates by the Spanish consumer association Facua, the average bill for consumers with the regulated rate was 77.9 euros in July.
Due to the effect of the VAT reduction, the bill was not higher than in June, but according to calculations by the consumer organisation, it was the third-highest in history.