The most expensive and volatile year in the history of the Spanish electricity market, with several consecutive historical highs, draws the curtain with zero prices. Spaniards who have contracted a regulated rate will end the year paying the lowest average daily value in 23 months. The matching price in the wholesale market will be at zero in various time slots at dawn — something that has not happened since March 9, 2014. And once the adjustment by the so-called Iberian mechanism has been incorporated, half of the hours of the day will show negative values, an absolutely unprecedented fact in the Peninsula although relatively common before the start of the crisis in markets such as the Dutch or the German.
The asymmetry of this Friday could hardly be greater with the situation that was experienced just a year ago: on December 31, 2021, the average price of electricity in the Spanish wholesale market was paid at 140 euros per megawatt hour (MWh). Everything, despite the fact that the drop in consumption, typical of a holiday, had already made electricity cheaper compared to the immediately preceding days.
The factors behind this drop are the same ones that have pushed prices down in recent days, albeit exacerbated. “After the recent rains, the hydroelectric plant is working at full capacity: it has not generated so much since April of last year; demand is still very low; and, in addition, the wind will meet the sun in the central hours of the day”, sums up Francisco Valverde, an expert from the consultancy Menta Energía. “The result of all this cannot be anything other than very low prices.”
The receipt rises 33% in 2022
The overall analysis of the year that is ending is radically opposite. The price of electricity in the wholesale market closes 2022 at an average of 209.4 MWh, which makes it the most expensive year since the beginning of the historical series, in 1998. The average price of electricity in 2022 almost doubles the 111.93 euros/MWh on average last year, which had already been the all-time high until then.
The ultra-low prices on this Friday are, however, a rarity in a year that will go down in history as the one in which the electricity market exploded. The average electricity bill for a consumer with a regulated rate (PVPC) has risen by almost 33% on average compared to 2021: 270.5 euros more in the year as a whole. The good performance of the second half of December will not prevent the twelfth month of the year from ending with a rise of more than 10% compared to November, when it had reached its lowest level in 16 months.
In 2022, the Spanish wholesale market also registered the month with the most expensive average price in the entire historical series, specifically, last August, when it reached 308 euros per MWh on average. Likewise, the day with the most expensive average price of electricity ever seen in Spain was last March 8, with almost 545 euros.
The Russian invasion of Ukraine has had a lot to do with these historical peaks, which began on February 24 and has caused an unprecedented rise in the price of natural gas, an essential ingredient in the electricity generation matrix throughout the year. In August the price of this fuel reached maximum levels after the supply cut by the Russian gas company Gazprom to several large European countries, including Germany.
Added to the cocktail of high electricity prices was also the drought, which left the production of hydraulic power plants at a minimum and forced more gas to be burned than ever to generate electricity.
The tailwind of the Iberian mechanism
To mitigate the impact of the increase in electricity, the Government has approved this year an unprecedented reduction in taxes on the electricity bill. And it has obtained the go-ahead from Brussels for the Iberian mechanism, which has allowed Spain and Portugal to separate their electricity markets from those of the rest of the European Union countries: from being among the most expensive in the first half of the year, they have become be among the cheapest in the final stretch of 2022. If this system, which seeks to separate the gas and electricity markets, had not been put into operation since June 15 —when it came into force—, it would have been 23% higher .
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