Government cuts to lower electricity prices force electricity companies to repay 450 million euros already

The Government activated as part of its first shock plans against the impact of the energy crisis, at the end of the summer of 2021, a system to control the extraordinary profits of electricity companies to prevent them from taking advantage of the escalation of prices to increase their income. In practice, the Executive has since imposed a price ceiling for electricity sales contracts and will maintain it at least throughout 2023.

The aim was to prevent energy companies from selling electricity produced with nuclear, hydroelectric and part of renewable energy at the then exorbitant wholesale market prices , triggered by the price of natural gas and CO2 emission rights, which these technologies do not support.

The mechanism activated by the Government obliges nuclear, hydro and renewables companies to return the extraordinary income obtained with the contracts signed above a maximum price of 67 euros per megawatt hour (MWh) which, according to the Government's calculations, was the barrier between taking unjustified advantage of the crisis and not doing so. The sum of the amounts that the companies have already had to return for excessive income in just over a year amounts to 450 million euros, according to data from the electricity companies themselves to which El Periódico de España, part of the Prensa Ibérica group, has had access.

The National Commission of Markets and Competition (CNMC), in charge of making the sector's cost and expense settlements, has only officially revealed that between September and December 2021 the reductions in income reached 131.8 million euros, but since then it has not made public the impact of the cuts for the energy groups.

Throughout 2022 the companies continued to return extra income to the electricity system to reach 320 million, according to sources in the electricity sector with knowledge of the settlements formalized so far. The Government's estimates for 2023 are that the electricity companies will return an additional 330 million euros to the electricity system, as stated in the report of the ministerial order on electricity system charges for this year, prepared by the Ministry of Ecological Transition, headed by the Vice-President Teresa Ribera.

Clash between electricity utilities and the Government

The Government's cuts have caused a clash with the energy companies. The large electricity companies continue to deny the existence of these extra profits and emphasize that they have all their production sold in bilateral contracts at prices much lower than those of the wholesale market. In fact, the sector points out that precisely the amount of the reductions made since the implementation of the maximum price mechanism demonstrates the reduced volume of electricity from nuclear, hydroelectric and renewable energies that are sold at market prices or above the 67 euros per MWh set by the Executive.

The large electricity companies point out that if all the electricity produced by nuclear, hydroelectric and renewables had been sold at the prices set by the wholesale market, the reductions made would have amounted to 13,400 million euros, compared to the 450 million actually returned to the electricity system. In parallel, the companies also complain that the ceiling set by Spain is 67 euros, while the European Commission has set as a reference for the maximum price of electricity is 180 euros, almost three times higher than in the Spanish market.

From the Government, on the other hand, it is countered that the revenue reduction system is helping companies to contain their prices, since it is allowing electricity companies to sign all their new contracts and their updates for a maximum of 67 euros per MWh in order to avoid the return of the extra revenue. In addition, the Executive praises that the mechanism is helping the electricity companies to be more transparent and to clarify the system of price formation, since they have to disclose data on millions of contracts every month to prove that they do not sell electricity above the maximum price set.

Control of extra profits

In September 2021, the Government activated the system that obliged nuclear, hydroelectric and part of the renewables (infra-marginal technologies) to return what it considered extraordinary income. Subsequently, the Executive took advantage of another macro-decree of anti-crisis measures due to the war in Ukraine to review the system for reducing extra income and extend it to all contracts signed at high prices (above 67 euros per MWh).

And it also created a special surveillance system for large electricity companies to ensure that they are not hiding the so-called ' windfall profits' along the chain of contracts between companies of the same group to end up passing on the inflated prices to the end customer.