The Vice President and Minister for the Ecological Transition, Teresa Riberawill present today after the Council of Ministers the main lines of the proposal that the Spanish Government is going to send to Brussels for the reform of the wholesale electricity marketwhose debate is scheduled for next spring between the community countries.
This proposal, included in a report analyzed by the Government at its meeting today, is the first sent by a Member State to the European Commission on the aforementioned reform and agrees with Spain’s request that the call be extended until the end of 2024 Iberian exception, which imposes a ceiling price on electricity generation with gas on the Peninsula and expires in June. That is the term that the Government foresees to reach a consensus for the reform of the marginalist market.
Precisely, the key to the reform proposed by the Executive is the decoupling of electricity generation with natural gas of said market, which would not imply eliminating the marginalist system, according to sources familiar with the report. In fact, the Iberian exception does not expel gas from the poolbut imposes a price cap to prevent inframarginal technologies (nuclear, hydro or renewable) get contaminated of the high prices of that one (also of those of coal).
There are several ways to approach decoupling and to different degrees, add the same sources, who recognize that everything is on the table. Options include the market segmentation by technology; remove some energies, such as nuclear, from it, guaranteeing it around 60 euros/MWh, or creating a capacity marketin parallel to the marginalist, for backup technologies (gas, nuclear and coal), which could choose between one or the other.
The reform will be a tough nut to crack (the current market system already took many years to set up), especially considering that there are several countries that are opposed to making changes and will therefore not put forward any proposals. Is about Germany, Austria, the Netherlands and the Scandinavian countries. In the case of the Eastern countries, there are differences of opinion and only the southern bloc (France, Italy, Spain and Portugal) is clearly in favor of a thorough reform of the wholesale market, decoupling, in one way or another, natural gas .
Fabra Report
The Government’s proposal is based, according to sources in the sector, on the study that Transición Ecológica commissioned at the time Natalia FabraProfessor of Economic Analysis at the Carlos III University and independent director of enagás. Presented on November 22 under the title of Electricity Markets in Transition: A Proposal for Reforming European Electricity Markts, the author reiterates that the current design of the market “is inadequate, whether gas prices are high or low”, because, in her opinion, “a single price cannot adapte the myriad of coexisting technologies leads to losses for some energies or gains for others. One size does not fit all.”
The escalation of gas prices in the last year, as a consequence of the Russian invasion of Ukraine, triggered high inflation in Europe and calls into question the environmental objectives of the EU. Thus, he considers that “the design of the electricity market is at the heart of the problem, since it makes consumers pay for all generation at the cost of the most expensive plant.”
To do this, it proposes a liquid and transparent energy market in the short term and long-term contract auctions“that promote efficient investment decisions with a reasonable return for investors”.
Each technology would have its own contracts. And these would be cuatro: for intermittent renewables, contracts for difference to reduce investment risk; for flexible energy, flexibility contracts to encourage production when necessary; For assets capable of arbitrating price differences, the proposed solution is capacity payments, which reduce risk and recover costs. Regarding power plants with firm capacity (gas, nuclear or coal) a price limit would be imposed and they would be penalized if they were not available.
“Competition for these contracts, in turn, will help pass the resulting efficiency gains into lower prices for consumers,” the report states. In cases where competition is impossible because the investments have already been made and there is no free entry to the market, “the regulator will establish the prices of the contracts through cost audits to ensure a fair rate of return”, he adds.
Sánchez wants to open a gap in an election year
In an election year, and in view of the leading role that Spain has acquired in Brussels with its proposals to alleviate the sharp rises in energy prices, the Pedro Sánchez government wants to maintain its cachet. With the decision to send the first report on the reform of the wholesale electricity market to the EC, which will be debated in the spring, he once again paves the way for said leadership.
Spain has been proposing a new regulatory model for the wholesale market for a year and a half to prevent combined cycle plants from marking the price of other energies. “We must reduce the volatility in electricity prices and guarantee investments in the development of renewable energies that allow lower and more stable prices,” said the vice president of Ecological Transition, Teresa Ribera, yesterday.
Ribera also officially announced the Government’s intention to request authorization from the EU to extend the validity period of the Iberian exception until the end of 2024, with a gas cap lower than the one currently applied: between 45 and 50 euros/MWh.
