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    Electricity companies warn: France "takes advantage" of gas cap and raises prices in Spain


    June 20, 2022 - CE Noticias Financieras

     

      Exports of electricity from Spain to France have soared to record levels since the entry into force of the so-called "Iberian exception", the mechanism designed by the Government to cap the price of natural gas for electricity at 40 euros per megawatt hour at start-up and try to lower the electricity bill. This record demand from France increases the tension in the market and ultimately raises the price of electricity in Spain, as indicated Monday by the Association of Electricity Companies (Aelec).The director of regulation of the electricity employers, which includes Iberdrola, Endesa and EDP Spain, Pedro Gonzalez, said that since the implementation of the mechanism, last June 15, the interconnections with France have operated at maximum capacity virtually uninterrupted, thus reaching "maximum saturation in the export direction," due to the cheaper price of light in the Spanish electricity system by the measure.These electricity exchanges will soar to a maximum of about 25 terawatt-hours (TWh) per year, approximately 10% of the demand in Spain, thus quintupling the usual 5-6 TWh, according to Aelec calculations, which foresees French demand "at all hours", which will lead to increased production.industry analysts have warned, moreover, that this will trigger thermal generation. In this sense, Aelec forecasts an increase in natural gas generation, the technology of the 'mix' that ends up making the 'pool' more expensive in the end due to the cost of the raw material and emissions, to cover this demand from the neighboring country, which will represent "a higher price" of electricity in Spain. "The offer of a lower electricity price from Spain raises the export balance with France to these maximum levels, despite the fact that French consumers do not pay the compensation to the combined cycles for the measure, which falls on Iberian consumers who benefit from the mechanism. Only the French part of the congestion rights is destined to this compensation to the gas of the measure, although the Spanish Government tried to introduce a mechanism of double matching, although the Aelec executive considered that "it will not be enough".on the other hand, the employers' association of electricity considered that, although the mechanism will mean a reduction in the electricity bill of consumers who benefit from it, it will be "complicated" to reach the target set by the Government to reduce between 15% and 20% of the bill.Thus, to achieve this objective, he estimated that a reduction in the price of the electricity market of between 30 and 40% would be necessary, when in these first days of application of the measure, although it is true that "atypical" by conditions of heat wave, increased demand, little presence in the 'mix' of renewables and increased generation with natural gas, has varied its fall between 6% and 22%.In addition, Gonzalez stressed that the base on which to distribute the application of the mechanism, which currently represents around 41% of demand - the contracts indexed to the pool and which include consumers of the regulated tariff (PVPC) - will be expanded throughout the time the measure is in force, reaching almost 100% in May 2023, when the Iberian surplus expires, with the exception of the few contracts linked to a term of more than one year. Thus, with the renewals of fixed-price contracts, the base of contracts that pay compensation for natural gas will increase, and the cost of the compensation will be internalized in these reviews.The Foundation for Applied Economics Studies (Fedea) had already warned of these "structural distortions" derived from the greater external demand that the mechanism itself induces. Taking Wednesday 15 as a reference, the market price in France was above the Spanish price, practically in all hours, which induced high export flows to France.Data from the Iberian Electricity Market Operator (OMIE) show how the programmed export flow with France exhausted "all the available interconnection capacity", even though it was "much lower" than usual, some 1,352 MWh on average, possibly due to weather conditions. Fedea also referred to congestion rents -total energy exchanged for the difference in prices of the two zones-, which will increase due to the increase in these exports and the greater discrepancies in value between the two countries. In its report, it remarked that as the price in the Iberian market decreases, it generates transfers of rents to other markets", which, in the case of France, "are easy to observe as they are substantiated in higher congestion rents appropriated by that country". The valuation of these transfers to France and Portugal could reach 1 billion.

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