Spain will collect this year 1,100 million more for COâ‚‚ emission rights, twice as much as last year

They say in the sector that if they have explained the operation of the electrical system and you have understood it, it is that they have explained it to you badly. It does not seem that this peculiar sentence is very far from reality, judging by the analyses and reactions made to the events that have happened during these days, in which everything revolves around CO prices._â‚‚ and its impact on the electricity bill, the new tariff with time periods and the upset reaction of electricity companies and consumers.

He started the week with the advance that the price of electricity had skyrocketed in May. The cause was the increase in the price of CO_â‚‚ (along with that of gas), which has affected all of Europe. Subsequently, from Tuesday, June 1, the new electricity tariff model came into force, based on time periods in which the price depends on the time the energy is consumed and that arrived hot due to the critical position of consumer associations.

That same day, with the staff making cabals about the happy periods, the Council of Ministers gave to coincide the change in the rate with the implementation of a draft law to reduce the remuneration of non-CO emitting plants._â‚‚ prior to 2005 (i.e. nuclear and hydraulic and some first-generation wind farm) in 1,000 million and the approval of the National Fund for sustainability of the Electric System (FNSSE), which had been collapsing for months. In both cases, the objective is to lower the price of electricity: the first, between 4% and 5%; the second, around 10%, but in five years. The auction was put on Thursday by the Nuclear Forum, a lobby formed by the electricity companies with interests in the sector (Endesa, Iberdrola, Naturgy and EDP), which was emboldened against the draft denying the largest – that the plants are amortized – and accusing the Government of imposing a “disproportionate, discriminatory and confiscatory” taxation, as well as of causing the financial asphyxiation of the nuclear park.

In short, a week of high voltage. The evolution of the first days shows that it is still early to check if habits change, but it does reflect that putting a washing machine is more expensive than a week ago with the other system that did not have peak hours, flat and valley. Specifically, 42.5% at peak times (from 10.00 to 14.00 and from 18.00 to 22.00) and almost 16% at off-peak hours (early morning).

But this is not the fault of the model, which will surely be taken advantage of over time; but the increase in the price of CO_â‚‚, which had already been noticed days ago. In any case, they highlight decarbonization and the CO_â‚‚ emission rights market, which was created to penalize energy generated with fossil fuels and boost renewable energies. In Europe, this market operates on the principle of limitation and trade. That is, a maximum limit is placed on the total amount of emissions that the facilities can make, which have to buy the rights in weekly auctions or on the secondary market. At the end of each year, they must surrender enough allowances to cover their emissions. Otherwise, they are sanctioned.

But, as the price of CO_â‚‚ was very low and did not produce the desired deterrent effect, the EU decided to reduce emission allowances by creating a reserve mechanism for the price to rise. It had an effect. CO_â‚‚ prices became more expensive and, consequently, the final cost of electricity has increased, as has been reflected in recent months and has just exploded in May, partly highlighted by the decisions of the Executive.

As a result of the increase in electricity, the collection of States is increasing. In the case of Spain, where the 60 million tons it had allocated were reduced by 10 million due to the application of the aforementioned reserve mechanism, the collection planned for this year is estimated at about 2,200 million euros, according to the price set by the futures (above 50 euros per ton). This amount is more than 1,100 million higher than what it had been collecting in previous years.

A good pinch that leads the electricity companies to demand that the Government transfer that excess of expected collection to finance costs of the sector (the so-called charges set by the Government) that are included in the bill. In this way, the regulated part of the electricity bill could be reduced by 7.5%, which in the final bill of the consumer would mean a saving of close to 4% (the charges represent around 45%). Alternatively, they add, it could allocate part of this increase in the collection of duties to compensate certain industrial sectors, increasing compensation for the risk of carbon leakage.

In fact, Spanish law already provides that a part of the revenues from auctions will be used to offset costs of promoting renewables in the electricity sector (450 million), to measures aimed at combating climate change or even to compensate certain industrial sectors at risk of carbon leakage. That amount has risen in the 2021 Budgets to 1,100 million, according to the sources consulted.

Secondary market

The utilities recall that, of the supply of rights, the electricity sector needs almost half to meet the demand needs and that other sectors that consume fossil energy benefit from a free allocation of rights of those who sell part in the secondary markets obtaining a direct benefit.

These sources also point out that, as renewable energy production is not enough to cover the demand for electricity, it is necessary to operate combined cycle plants and they must acquire CO_â‚‚ rights to avoid penalties at the end of the year. With the current prices of the rights, the cost of production of the cycles becomes more expensive by 20 euros per megawatt / hour (MWh), they point out.

And, in the middle of this maremágnum, some experts add more fuel to the fire. They point to the profitability of 7.09% that is granted to renewables. In his opinion, it could be lowered to around 4%. But that’s another story few want to tell. When it was reduced in 2013, it caused almost fifty lawsuits against Spain in international arbitration courts. A further reduction could mean another wave of demands when it is precisely negotiating to withdraw those that already exist.

Source: The Country