Almost free electricity at dawn: renewables and low demand prolong the streak of cheap prices

The early hours of Wednesday through Thursday will be the perfect time for households with a regulated electricity rate to program the dishwasher and washing machine. Also so that whoever has it can charge the electric car. The price of electricity in the wholesale market will fall between four and five to 0.09 euros per megawatt hour (MWh), its lowest level in a year and a half: nothing like it has been seen since the afternoon of May 9, 2021, just before the outbreak of the energy crisis, when electricity cost only one cent in two hourly periods.

The daily average for this Thursday —16.19 euros per MWh— will also be the second lowest in more than a year and a half, only behind Christmas Day, when it fell to 15.24 euros. In annual comparison, this Thursday electricity will cost 11 times less than on December 29, 2021, when the price easily exceeded 181 euros. The decrease will be noticed directly on their bill by consumers with a PVPC rate, which is directly derived from prices in the wholesale market. The rest, particularly those with a fixed free market contract —with the same price in all time slots, every day of the year—, will only benefit in the future, when the sustained drop in prices forces the electric companies to drop all its catalog of offers.

The almost free electricity in the wholesale market responds, to a large extent, to two factors: the high penetration of renewables and the low demand, typical of quasi-holiday days and temperatures much higher than usual on these dates. Wind, hydro and solar will cover this Thursday just over 65% of consumption throughout the day, according to data from the Iberian Energy Market Operator (OMIE), while non-emitting sources of carbon dioxide —the sum of all the previous ones and the nuclear one— will touch 90%. By early afternoon, that figure will be around 97%. And the combined cycle plants, in which gas is burned to generate electricity, will not enter any time slot, a fundamental trigger for low prices.

Among the large countries in the eurozone, Spain will be the second country with the cheapest light this Thursday, only behind Germany, where strong gusts of wind will boost wind power and will yield an average daily price of just over 13 euros. per MWh.

“December started badly, but it is ending very well. Demand is very weak and renewables are very strong, especially wind power,” says José Luis Sancha, a professor at the Universidad Pontificia de Comillas. “In addition, until two days ago we have been exporting to France at the top and now it is being mixed, with exports and imports depending on the time, and that is also helping.” Will the downtrend continue in the coming weeks? “With the war in the middle, these prices can be a flash in a day… Or not. But as long as it continues, it is clearly a disinflationary factor. The important thing is that, right now, the light is already at pre-crisis levels”, replies the expert.

Gas, at prewar levels

The drop in the price of electricity, which augurs a year-end with inflation clearly picking downwards, is not the only good news in the European energy markets: the price of natural gas in the Old Continent has fallen at first this Wednesday morning to 76.25 euros per MWh, its lowest level since February 23, the day before Vladimir Putin began to bomb Ukraine. Although the Dutch TTF index —the one used as a reference for the EU as a whole— ended the day reversing the initial red numbers, its lower price in recent weeks has injected a dose of optimism in the main continental capitals, starting with Berlin , by far the most exposed to the gas crisis.

As in the case of electricity, the drop in gas responds to the good progress of renewables —as in Spain, the rest of the bloc’s countries are burning minimal amounts of this fuel these days to generate electricity— and to the very benign weather to be the end of December.

This conjunction of factors is causing an anomalous phenomenon at this time of the year: that underground gas deposits, far from going down, continue to rise day after day. Since Christmas Eve, the warehouses have not stopped receiving new contributions, according to the aggregate data of Gas Infrastructure Europe, to exceed 83% of their total capacity. A trajectory that not only instills peace of mind in the immediate future —this winter seems practically over— but also allows us to project a somewhat less tense winter ahead: the less reserves are consumed in the coming weeks, the less harsh the cold season will be in 2023 after a spring and a summer in which the tanks will have to be refilled without the crutch of the Russian supply.