November and December have brought with them a powerful oxygen ball for homes. Besieged since the middle of last year by high energy prices, Spanish families are beginning to feel a slight relief in their pockets through a triple route: lower gas, lower fuel and, above all, lower electricity. The relaxation in the gas and oil markets, along with the better performance of renewables and the fall in demand, have allied to put some vigor in the pockets at a critical moment: just when the savings from the pandemic are beginning to be on the chassis.
Still awaiting the inflation data for December, which will be published this Friday and which points to a strong drop in annual comparison, energy will subtract just over one percentage point from the Consumer Price Index (CPI), according to calculations by the Complutense Institute of Economic Analysis (ICAE). The descent will be shared, in equal parts, light and fuel: electricity will subtract five tenths; diesel three and gasoline two. With these figures in hand, inflation will close the last month of the year below 6%. “I would say around 5.9%, for being prudent. Although it could end up even below, ”says Rafael Salas, one of his researchers.
This Friday, the price of electricity in the wholesale market will be the lowest since the beginning of 2021. By itself, the data might not say much: an isolated day, in the middle of the Christmas season — on holidays and quasi-holidays, electricity demand is sinks—, it is not a reflection of an underlying tendency. It is, however, much more than that: in the second half of December several lows since before the energy crisis have been broken. In a few months, in short, the Spanish electricity market has gone from grabbing the headlines due to price spikes to doing so for having returned to the levels prior to the moment in which the gas explosion turned the European electricity markets upside down.
The nearly ten million households (40% of the total) that are covered by the regulated electricity tariff, also known as PVPC, will end December paying less than 20 cents per kilowatt hour (KWh) for the second consecutive month, after some last days of especially low prices. Although still very high in historical comparison – it is more than double what used to be usual before the energy crisis – it is almost half of what families paid in March and August of this year, the two most expensive months of the whole series.
One figure perfectly summarizes the importance of the electricity market over the CPI: the drop this Friday, when the average daily price of electricity in the wholesale market will drop to 6 euros per megawatt hour (MWh), its lowest level in almost two years, it will subtract one tenth of December’s annual inflation. Given that the National Institute of Statistics (INE) only takes into account the regulated market to calculate the CPI, “everything that a few months ago was negative in Spain is now positive,” says Salas. The Spanish statistical office is working to also include free market contracts in the index, but it is still unknown when the new calculation method will come into force.
gasoline and gas
Fuels are also giving pockets a break, despite the fact that motorists are already preparing for the rise that will mean the elimination of the subsidy of 20 cents per liter. After six weeks down, the average price of gasoline at Spanish service stations this week is around 1.56 euros —before public aid—, 11% less than a year ago if that discount is included. Diesel, on the other hand, has risen almost 10% since the end of December last year, despite recording a drop of more than 16% since the beginning of November. To find a lower value, one must go back, respectively, to February and April of this year.
In the case of gas, although the impact on the CPI is minimal -the regulated market rate (TUR) has not changed since last October 1-, its lower price in the European wholesale market, where it trades very close to pre-war levels After going from 350 to 80 euros in four months, it has important effects on the rest of the energy products. The most obvious is on electricity: when combined cycle plants enter the fray, they do so at a significantly lower price. And the compensation for the call is also reduced Iberian exception.
“We are facing a significant change in trend. December started badly, especially in the electricity market, but the direction has turned completely in the last three weeks: the swamps have been filling up [más hidráulica]there has been more wind [más eólica] and the demand has dropped a lot due to the holidays and the high temperatures”, says Salas, also a professor in the Department of Economic Analysis and Quantitative Economics at the Complutense University of Madrid (UCM).
Despite the good end of the year, the first months of 2023 show mixed signals. The good news is that, unlike 12 months ago, the electric year begins with a much better tone, thanks to the contained demand, the improvement of the hydroelectric plant —after the rains of the last few weeks— and the full operability of the nuclear plants —who don’t have any stops scheduled until spring. The regular one is that the withdrawal of 20 cents per liter will automatically add six tenths to the CPI for January, according to Salas’s calculations, although it will be partially offset by the comparison effect with the same month last year, which will take some pressure off the index. The negative is that, although the weight of gas on inflation is minimal, the recently announced rise in the TUR will add an additional dose of spice to the CPI.
“There is a drop in prices from stratospheric levels to high levels,” says Javier Revuelta, senior analyst at the specialized consultancy Afry. “It is a temporary oxygen balloon: the gas problem is still not fully resolved, and I find it hard to believe that, unless there is a long recession in Europe and the United States, oil will remain at $80 for much longer. You don’t have to relax.”
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