The increase in gas and electricity prices will cost Spaniards €9bn

Wind power led electricity production in 2021, the year with the most expensive electricity

3 min
Electricity price in the wholesale market

BarcelonaEnergy transition has a cost and Spanish consumers are feeling it. Despite the increase in electricity generation from renewable sources – wind energy led electricity generation in Spain last year – in 2021 prices soared. According to Omie, the Iberian electricity market operator, the average for the year in the wholesale market stood at €111.93/MWh, with a strong peak in the last months of the year. This average price is an all-time record and 229.5% higher than the previous year's, which was marked by historically low prices due to the pandemic.

But if the comparison is made with 2019, the average price of electricity in 2021 in Spain was almost 135%. Moreover, the prices twice as high as in 2018, despite Pedro Sánchez's promises that they would not exceed 2018 levels. The Spanish executive created a shield of tax rebates to try to lower the bill for consumers, which it has extended until April, but has failed to stop the increase in prices. According to the Organisation of Consumers and Users (OCU), the Spanish government's measures "have not managed to reduce the price of electricity". Moreover, futures markets indicate that the price of electricity will continue to rise in the coming months and have reached prices of over 400€/MWh.

The causes of the increase in the price of electricity are well known: the increase in the price of gas, the increase in the cost of CO2 emissions, and a marginalist market in which the last technology to enter, gas, which is the most expensive, sets the price. The emission allowances for each ton of CO2 were on average €24.75 in 2020, while in 2021 they were almost double, €53.55 on average throughout the year, but are on an upward trend with December prices at €79 on average. The impact of the price of gas, which is used in combined cycle power generation plants, was even stronger. In the first session of the Spanish Mibgas market of 2021 the price in euros per MWh of gas was €31.78. One year later it was €85.

The rise in the price of electricity has occurred, moreover, in a year in which its consumption has risen compared to 2020, when lockdown brought economic activity to a halt, but which is still below pre-pandemic levels. Electricity demand in 2021 in Spain was 256,462 GWh, 2.6% more than in 2020, but 3.1% lower than in 2019, according to data from Red Eléctrica, the company that operates the system.

Calculating, however, the impact of the electricity price increase on consumers' bills is not easy. Bank of America has made a study on how much the increase in electricity and gas will cost Spanish domestic consumers: €9bn. The entity has made its estimate by comparing the prices of 2021 with those of 2020. According to the investment bank, the combined cost across all European countries will be around €107bn.

Despite the €9bn increase in cost, according to the bank Spain is not the worst off state, and points out that in the United Kingdom it will rise to €27.7bn, while in Italy it will be €24.5bn, in Germany €23bn and in France €22.1bn. Only Portugal will suffer a smaller impact than Spain, with around €700m.

Bank of America forecasts a price increase of around €475 per year for each of the 19 million Spanish households over the course of 2022. If the measures approved by the Spanish government are extended for the whole year, the impact would be reduced by a third and the increase would be €170 per household, between €3bn and €4bn for all consumers in the State. The executive extended the rebate on taxes included in the electricity bill paid by all consumers until April 30, in order to alleviate the negative effect that the rise in electricity prices is having on citizens. Specifically, the reductions in VAT from 21% to 10% and in the special electricity tax from 5.1% to 0.5%, which is the legal minimum, were extended until April 30. Even so, the suspension of the 7% generation tax paid by companies will only be maintained, for the time being, until March 31.

More renewables

In 2021, electricity generation from renewable sources achieved historic figures. About 46.6% of electricity came from renewable sources, compared to 44% a year earlier. And wind power took on special prominence, as it was the leading source of electricity production in 2021 with 23.3%. Thus, it overtook nuclear power, something that had not happened since 2013. In addition, solar energy gained weight (8% in 2019 by 6.1% in 2020). For Beatriz Corredor, president of Red Eléctrica, the data show that "Spain is making good progress in its ecological transition process".