The boost to renewables will reduce the price of electricity to historic lows |  Economy

The boost to renewables will reduce the price of electricity to historic lows | Economy

The massive entry of renewable energy (wind and, above all, photovoltaic) into the Spanish electricity system will drastically reduce the price of electricity in the remainder of the decade. This is provided by the Government and Red Eléctrica de España (REE) in the draft of the National Integrated Energy and Climate Plan (PNIEC), which projects an average cost per megawatt hour (MWh) of 28.5 euros in the wholesale market. The regulated tariff draws directly from it and, indirectly —sooner or later, it is the reference on which all free market contracts for homes and companies are structured.

This projection represents a cut of almost 70% compared to the almost 90 euros per MWh that electricity averages so far in 2023 and more than 80% compared to the levels of 2022, the year of the energy crisis and in the that all records were broken. For France, the REE calculations that the Executive endorses in the PNIEC —the great energy roadmap for the coming years— point to an average of 51 euros, notably below current values ​​but also 77% higher than expected. that Spain will average then. Unlike in the Iberian Peninsula, which in recent years has become a major European pole of attraction for investment in renewables, in France the deployment of these technologies —although notable— is taking place at a slower rate and nuclear it will continue to set prices for the rest of the decade.

The price forecast included by the Government in the text recently sent to Brussels is notably more optimistic than the futures markets. Compared to the 28.5 euros projected by the Spanish authorities for the end of the decade, these point to 45 euros per MWh. Although it would continue to represent a more than substantial decrease (it would be practically half that of today), the reduction would be much less than what REE and the Ministry for Ecological Transition expect. For France, futures are also more pessimistic: just over 81 euros per MWh in 2030.

Positive economic impact

The drop in the price of electricity will be a relief for companies and households, and will have a strong disinflationary effect. Even more so, with the expected takeoff of electric cars, heat pumps and other electrified solutions to move away from fossil fuels. “Reducing the cost of energy thanks to renewables is key to competitiveness,” the Government stated in the document sent last week to the European Commission. “The transformation has been reflected in future electricity markets and with it in the increasingly better investment prospects, which find more affordable energy price forecasts in Spain than in other European markets.”

Spain, reads the new PNIEC, “is the country with the greatest solar resource in all of Europe and is among the countries with the greatest wind resource. This allows generation to be a reality (…) at prices significantly lower than those of other energy vectors, resulting in greater competitiveness of the economy and an improvement in domestic economies”.

Savings of almost 91,000 million

According to government calculations, the combination of a higher rate of electrification and a substantial drop in the price of electricity will result in extra GDP growth of 34.7 billion euros, 2.6% more than in the baseline scenario (the which does not account for this effect). In terms of employment, the result will also be substantial: the plan provides for the creation of between 430,000 and 522,000 jobs, 50% more than previously expected.

In these calculations, the Executive takes into account both the economic savings and the release of resources that will allow the transition from fossil to renewable energies. Also the consequent release of resources, which will generate “greater spending on other goods and services.” “The impact of this effect is small initially, but it grows towards 2030 when investments in savings and efficiency and in renewables are taking effect and the prices of fossil fuels are higher,” the ministry technicians point out. Just the lower consumption of imported fossil fuels will mean cumulative savings of 90.7 billion euros up to 2030. The trade balance will be very grateful for this.

More spills

The other side, partly inevitable, of the renewable boom will be the growth in the volumes of clean energy that is wasted throughout the year due to a lack of synchrony between supply and demand during the hours of greatest generation. Although the new PNIEC points to a strong increase in electrification and storage by the end of the decade, when Spain should have some 22 GW of installed power (almost four times more than today, including batteries, pumping stations and thermoelectric ), the exponential growth of the renewable park will trigger discharges to 9.3% of the total generated by clean sources, compared to the current 1.6%.

If the Government’s plan is fulfilled, wind power (on land and at sea), photovoltaic and hydroelectric will add up to 72% of the installed capacity in 2030. At a great distance, combined cycles (gas) will be 12% total and will continue providing flexibility to the system: they will inject electricity into the system when the wind is not blowing and the sun is not shining. Cogeneration will remain at 2% and nuclear at 1%, with only three reactors in operation if an extension in the useful life of the seven that are currently in operation is not approved beforehand. If storage is removed from the equation, 81% of the installed capacity in Spain will be renewable, one of the highest figures in Europe and far from the current 60%.

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