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    Electricity bill reduced by only 6% on the first day of the gas price cap


    June 16, 2022 - CE Noticias Financieras

     

      As expected, the premiere of the mechanism to cap gas prices in Spain and Portugal based on the so-called Iberian exception was dominated by complexity, confusion and also a dose of disappointment. What initially looked like it was going to be a big reduction, when all the accounts were done, ended up with a real discount of around 6% on the consumer's final bill.

      To understand this, let's take a step-by-step approach. The Iberian Energy Market Operator (OMIE) carries out a daily auction by time slots for the wholesale electricity market. It sets the price per megawatt hour (MWh) based on the contribution of the demand covered by each type of energy, from renewables (which enter at zero euros) to gas, which is always the most expensive. The average price per MWh marked yesterday and applicable today was 165.59 euros. That is a decrease of 22.6% compared to the price marked the day before, of 214 euros MWh. But yesterday's auction was not the same as usual. The price of gas was capped at 40 euros per MWh, according to the new mechanism allowed exceptionally and temporarily for Spain by the European Commission, compared to a real price in the Spanish market of 78.8 euros MWh.

      Therefore, this reduction of 22.6%, i.e. 49 euros, in the price of MWh electricity had to be discounted. This is the cost that all consumers have to pay every hour to compensate for the difference between the 40 euros at which the cost of gas has been set and the real cost of 78.8 euros incurred by the combined cycle power plants to produce electricity.

      That compensation reached yesterday a measure of 59.27 euros, but in the hours in which more gas was needed to cover the electricity demand reached 78 euros, according to data provided by OMIE.

      Adding both averages, the 165.59 euros marked in the auction plus the 59.27 euros of compensation, results in a total of 224 euros per MWh. That is, the price per MWh would be 10 euros higher than that paid on Monday. "This does not mean that with the gas cap mechanism the price of electricity has been more expensive, because what must be compared is how much would have been paid without that cap," electricity market sources point out. And if the auction had been held yesterday under normal market conditions, without the intervention of the Iberian mechanism, the average price at which the MWh of electricity would have been paid would have been 237 euros, according to market sources, or 240 euros, according to information provided by the Ministry of Ecological Transition. "In both cases the real effect of the gas cap for the bill of consumers subject to the market (PVPC) was a reduction of around 6%", these sources confirm.

      The Government reiterates that the discount for consumers will end up being between 15% and 20%.

      The reduction is far from what was announced by the Government, which expects a discount on consumers' bills of between 15% and 20%, but according to what the Minister for Ecological Transition, Teresa Ribera, reiterated yesterday, this is an estimate for a full month and, therefore, it will not be until the end of July when it can be compared.

      For the time being, the explanation for the lackluster debut of the gas cap by Transición Ecológica points to "exceptional" weather circumstances. They claim that the heat wave has triggered demand "almost 80 gigawatts". This is coupled with a low production of wind energy, which has caused "gas power plants to reach their maximum production in the last year, 373 GWh".

      "The result is, therefore, clearly favorable for consumers and guarantees their protection against high energy prices during the coming months, especially in winter," the ministry assures.

      This is also the opinion of Roberto Gómez Calvet, professor of Economics at the European University. "What seems beyond doubt is that consumers whose contracts are linked to the PVPC price will see a reduction in their rates, even with the compensation. Another thing is that the average is barely a hot cloth in the underlying problem of the impact of electricity prices on consumers' bills," he points out.

      Transición Ecológica assures that today the gas plants will reach the maximum production of the year.

      While this reform, which is also required by the European Commission, arrives, the situation is getting ugly for free market customers, with fixed price contracts. They also have to pay the cost of compensating for gas.

      In this context, the electricity sector points out that "the most affected will be the companies with a fixed price contract that has been renewed since the end of April, as they will suffer an average surcharge in their bills of around 60 euros per month".

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