Moncloa’s proposal to redesign the European energy market involves shifting the baton of renewable deployment from the private sector to the State
The Government wants to convince Europe to blow up the pool, the current wholesale electricity market, almost entirely. Moncloa’s roadmap involves promoting term energy sales contracts to reduce the volatility of the bill. In In practice, the fine print of the Executive’s proposal implies a intervention prices of renewables, nuclear and hydroelectric, an approach that threatens to open a new front between the Government and the big energy companies for control of the green transition.
The Government sent its proposal to Brussels yesterday, according to Executive sources. The master lines of the document go through removing renewables, hydraulics and nuclear (known as inframarginal in the jargon of the sector) of the wholesale market. The first (wind and photovoltaic) would start to sell their energy through contracts for difference (CfD)in which a maximum price is set and, if at the end of the contract the price of electricity has exceeded the set ceiling, the producer receives the difference.
In the case of hydraulics and nuclear, the Government proposes that in addition to the contract for difference they receive an incentive for availability. For the combined cycles, which use gas to produce electricity, they will receive a remuneration for capacity, the cost of which will be passed on to the entire system. In short, a total price intervention.
The key is how the forward market is going to be fostered. There are two options, either through bilateral contracts (PPA) signed between the parties, or through semi-regulated auctions.
The informative document that the Government released yesterday does not specify this issue, but sources from the Secretary of State for Energy point out that the Executive is going to prioritize the auctions. This would force renewables to bid lower in competitive processes where the maximum price is set by the State, specifically, “the regulator.” In contrast, in bilateral contracts the margin is set within the framework of the negotiation between the parties.
“That is where the clash between the Government and the companies will take place, which, for obvious reasons, are more in favor of the work of developing PPAs, where the free functioning of the market is respected”, points out a specialist consultant in the sector.
Currently, many of the large electric companies have most of their energy arranged through PPAs. In the case of Iberdrola, for example, the company reported in one of its latest quarterly results that 100% of production had already been sold in Spain by 2022; by 2023, 90%; by 2024, 70%; and by 2024, 50%. These contracts are confidential, only the parties know how much they sell and buy that energy.
One of the arguments used by the Government to defend its reform plan is precisely the opacity of the current wholesale market. Among renewable developers, the comment that the Government has tired of being a stone guest at the clean energy festival. Through auctions, the Executive tries to take the helm of the ecological transition, marking how and at what price.
Given the magnitude of the reform proposed by Moncloa, its application would require a resounding consensus on the part of the Twenty-seven. The debate is tough. If it goes ahead, the regulatory change would be of historic significance and would force energy companies to rethink their investment plans to adapt their revenue forecast to a new framework where the profitability of the electricity business, key to financing their green investments, would be set the state.
According to the criteria of