Misc 12/01/2021

Electricity price hike amidst cold spell reopens debate

Storm brings down production of cheaper, renewable energy while demand increases

Leandre Ibar Penaba
3 min
Imatge d’ahir del Vilosell, a les Garrigues.

BarcelonaThe price of electricity, which last Friday reached an all-time high in Spain, will rise again this Tuesday in the midst of a cold spell throughout the Iberian Peninsula. The sharp increase has led to complaints from consumer protection organisations and a few political parties, including unidas Podemos, which is part of the Spanish government.

Specifically, on Friday the average price of the day in the State was €94.99 per Megawatt-hour, a figure never achieved before. And on Monday the auction left Tuesday's price at €84.25 per Megawatt-hour on average. However, between 9 and 10 pm the price will reach €114.02 per Megawatt-hour.

The figures contrast with last year's low, recorded on May 1, when the price was €11.51, and on Christmas Day, which stood at €16.04.

There are two reasons for the rising cost of electricity. The first is the increase in energy demand due to the weather: because it is colder, households and companies with electric heating consume more electricity, which pushes prices up. Specifically, last week the wave of cold caused by storm Filomena increased the demand for electricity in the State as a whole by 15% compared to the previous week.

The second reason has to do with how energy is generated and how prices are allocated. It must be taken into account that energy price is decided the day before it is consumed by families. European regulations oblige Spain and Portugal - which form a single market - to use a so-called marginalist electricity allocation. In other words, the price established is that of the last technology to enter the market, which is usually the most expensive, because the cheapest is bought first.

So, as energy is generated, the first electricity to be allocated in the market is that produced by nuclear power stations, which is very cheap and has the added bonus that it has to be allocated first, because atomic power stations cannot be stopped. From here on, the energy produced by other technologies is added to the market. Normally, behind the nuclear power plants, electricity from renewable sources is allocated and, finally, the other more polluting sources, such as thermal power plants.

"Renewables are much cheaper but now they have failed," explains Carles Riba Romeva, professor emeritus at the UPC and president of the Collective for a New Sustainable Energy and Social Model (CMES). According to Riba Romeva, Filomena storm has meant that neither solar nor wind energy has been generated - when it is too windy, the turbines have to be stopped as they may become unsafe. Thus, the technology that normally produces the cheapest electricity has been taken out of the market.

Consumer charges

The increase in the cost of energy in the middle of a cold spell has generated all kinds of criticism and has reopened the debate on the Spanish energy market. In fact, one of the points on the agenda of the PSOE-Podemos government is to carry out an energy reform in Spain, despite the fact that yesterday the economic vice-president, Nadia Calviño, warned that the executive's plans did not include avoiding rises like this week's. "We cannot let people think that the reform of the electricity sector that we are working on with determination means that we cannot have one-off increases in the price of electricity when there is a perfect storm like the one we are experiencing these days," Calviño told Cadena SER.

Back in Barcelona, Catalan vicepresident Pere Aragonès denounced the ease with which companies in the energy sector put pressure on the political establishment: "The best school for being a director of an energy company is to have been a Minister of State," he criticised in an interview with SER.

Xavier Farriols, member of the Catalan Cluster for Efficient Energy's Board of Directors

1. Is the Spanish electricity tariff system transparent?

Yes, it is transparent, you only have to enter a website to see the price of electricity live. It is a system of supply and demand in which the last person to enter is the one who sets the price. In addition, there is a supervisory body, the National Stock Market Commission (CNMV), which is responsible for ensuring the proper functioning of the system.

2. Does the system have any defects?

That it is increasingly complex. Before, technologies, such as coal, were more stable. Now, with renewable energies, which are sometimes forced to stop production, it requires more flexibility.

3. What is the main challenge of the current system?

To introduce renewables into this market. With storm Filomena, photovoltaic production has fallen by 40%. These decreases, together with the increase in the demand for gas worldwide, have made prices more expensive, but we also have to take into account that we come from very low prices.