A new electric waiting compass

The Government is waiting for the European Commission to give the go-ahead to the mechanism for limiting the price of offers from combined cycle gas plants in the wholesale electricity market (pool) to contain the escalation of electricity prices. A compromise that Brussels closed a month ago with Spain and Portugal, arguing that they are an energy island with hardly any interconnections, but which lacks the fine print or, to be more exact, where the maximum limit is set and who pays the compensation, since the cycles will always charge their real cost, but when reduced when bidding in the pool, prevents the rest of the energies (the so-called inframarginal: hydraulic, nuclear and renewable) from charging the marginal price set by the most expensive, gas, or very residually, coal.

At the beginning of April, when the government approved the broad battery of measures against the effects of the war in Ukraine, the Vice-President for the Ecological Transition, Teresa Ribera, announced that the concrete proposal for a mechanism that will involve the holding of two auctions by the market operator (OMIE) would soon be sent to Brussels: one without applying the mechanism, which will set the price of exports to France (the problem with achieving a cheaper price is that there would be an export pressure and the cheapening effect would disappear) and another, a replica of the first, already with the established ceiling. According to Ribera, the community approval would take two or three weeks.

Knowing that Brussels would not accept a very high price differential with the rest of the countries of the European Union, which would call into question the controversial marginalist system, harmonized and with a common cassation algorithm, the Iberian governments have proposed a very low starting limit price for gas: 30 euros/MWh, which would translate into an electricity price of about 100 euros/MWh (to obtain this price, that of gas is multiplied by two and 20 euros are added for CO emission rights₂ and the cost of tolls). The Commission wants at least twice that price and for electricity not to fall below double digits.

But, even so, this is not the most important problem facing the Executive, in which it is assumed that Brussels will have to fulfill its commitment on the “Iberian exception” that it made public with great fanfare and after it has turned a blind eye to the State aid that France and Germany apply to their citizens and companies. The problem, as so often, is the opposition of the big utilities to a measure to limit the price of gas that, in theory, they initially supported.

Or not, because his request referred (later it has been known) to limit the price of the wholesale gas market (in Spain, Mibgas), not to the offers of the plants in OMIE. A crazy proposal, according to some, and of little travel, because either it was limited in all European markets or it would not make sense. And in this case, either, because the ships would look for other ports where to charge above a hypothetical gas cap in Europe.

There are those who consider that precisely because it was impossible to execute, the companies defended that measure. In this way, they gave an image of a “collaborationism that has turned out to be false,” according to critical voices. Now the compensation mechanism, not so much the price proposed by the Government, has alarmed companies in the sector, which say they are forced to transfer to customers in the free market the price of gas that exceeds the limit that is set. The financing proposal of this part, for which Brussels has been interested, is that it be apportioned among the rest of the offers on the market, a system similar to that of capacity payments.

The customers of the regulated market (PVPC), including the vulnerable who receive the social bonus, who have suffered in their meats since last summer the exorbitant prices of a wholesale market to which they have indexed their rate, would now benefit from the fall in prices of a toxic market that the budding mechanism would lower. There could be the paradox that if prices naturally fell, due to the increase in renewable energy production and the fall in demand in the summer months, the mechanism would not be of much use. But volatility is still the tonic, even if green energies applaud the few hours a day that, for the moment, MW/h falls below single digits.

The regulated will benefit

But if the customers still covered by the PVPC (more than nine million) would now be the beneficiaries, those of the free market (domestic and large and medium consumers, which add up to another 19 million) could be harmed. Why? Because the contracts of these clients, at stable prices and on time, include review contracts in the case of “regulatory changes” that the Government decides. And the marketers have already warned, this is a regulatory change that would allow it to proceed with a review to transfer the new compensation for gas.

Another issue is that the consumer chooses to return to the PVPC (although in the world of electricity the changes are parsimonious) or that he continues if the cost of the revision is insignificant. In addition, the mechanism will be temporary, until the end of this year, as desired by the Government and must be consented to by Brussels.

For the electric companies, transferring this cost is a technical and expensive inconvenience, in addition to the added difficulty of being able to apply it to large consumers, with greater bargaining power. Even so, there are those who consider that what really outrages the companies is the loss of the extra profits that their inframarginal energies will stop receiving by limiting the marginal price of the pool.

In the belief that Brussels will not allow very different prices between Spanish and European industry, the big players in the sector are putting pressure on a Commission already sensitive to lobbies. The Government remains committed to indirectly making companies pay certain costs (read, the social bonus of electricity), obligations that they systematically resort to justice. Perhaps it would be simpler, according to sectoral sources, to increase corporate tax and allocate it to measures in favor of the consumer. With the advantage that it would not be appealable before any court.

Source: Five Days