The first heat wave of the summer brings the price of electricity closer to the highest levels of the year Economy

2024-07-17 16:07:44

A woman remains alone as she passes a street thermometer in Córdoba.Rooms (EFE)

The wholesale electricity market was lethargic for half a year due to the balm of renewable energy: the good performance of solar, wind and – above all – hydraulics. The arrival of the first episode of extreme summer heat, however, is starting to put an end to this long period of single or double digit prices: the wholesale market will reach 101.37 euros per megawatt hour (MWh) this Thursday, according to the data the Iberian Energy Market Operator (OMIE).

This Thursday will be the highest level since the beginning of January, mainly because – unlike what happened recently – the combined cycle plants will have to go into each time slot. And when gas closes in price, it is always higher than when renewables or nuclear do so. Therefore, increasing the weight of green technologies is essential to keep prices stable.

So far this year, in fact, this level has only been exceeded on two days: on January 8, in the middle of the return from the Christmas holidays, when 105.51 euros were reached; and on the 9th of that same month, when the average daily price was 113.83 euros per MWh. The heat wave, therefore, raises prices to the maximum distance of 2024.

The increase in prices will only affect two groups of consumers: the nearly nine million households and SMEs in the regulated market (also known by the acronym PVPC), who depend heavily on daily prices; and the few who choose a rate that is directly indexed to the wholesale market. In the first case, however, your bill does not depend entirely on hourly volatility: after the January reform, 25% of your bill is linked to futures references, which are by definition more stable.

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This Thursday, the highest price will be reached at dinner time: between nine and ten at night, when it will exceed 138 euros per MWh. The cheapest part, however, will be between three and four in the afternoon: just over 79 euros. This value, however, is particularly higher than in the previous days: last weekend, in fact, negative values ​​were reached during the hours of the sun, when photovoltaics cover the electrical demand for the most part.

“With the heat, the prices that are rising the most, pushing up the daily average, are the prices of hours of sunshine,” explains Francisco Valverde, independent analyst of the energy sector. “The night ones too, but less so. Moreover, this trend comes up early in the morning from weeks ago,” he notes.

Spain will have just over 101 euros per MWh equal to Portugal’s euro, although significantly higher than France’s 82 and slightly less than Germany’s 91. Italy, a country with good solar resources but not much space to install panels and where gas is still king, the price will be much higher: almost 122 euros per MWh. The price gap between Spain and France will make sense from an import point of view most of the time out of the interconnection.

Demand question

It is an indestructible binomial, summer after summer: high temperatures increase the demand – due to the use of more air conditioners – and decrease the supply – because the wind is less and, to a lesser extent, also because the loss of efficiency of photovoltaics. from 25 degrees Celsius. The result of this double force is a significant rise in prices, which will remain high until the weekend, when demand will fall again. That is not so much because the mercury is going to bring a truce (which it does not seem) but because the demand falls on Saturday and Sunday.

So far in July, demand for electricity in Spain has fallen by 2.3% – already corrected for temperature and calendar. A reduction that contrasts with the timid rebound of 1% accumulated since January, according to the latest data from Red Eléctrica de España (REE). Despite the gradual electrification of the vehicle fleet, industry and domestic cooling and heating systems, electricity consumption remains at levels very similar to those of two decades ago and has fallen 10% from 2018. Partly, due to the increase in self-consumption. —which drains demand and offers a new source of generation—; in part, because of the greater efficiency that comes from the increase in prices.

Futures market

The futures market, the best – albeit imprecise – thermometer of what is expected in the coming months, aim for average values clearly above € 70 per MWh in August as in September and October. And above 80 in November and December, with the arrival of the cold.

If these forecasts are fulfilled, the average annual price would be significantly below the average rate of 2023 (87 euros per MWh) but also far from the period immediately before the energy crisis: in 2018 it was just over 57 euros; in 2019, less than 48; and in 2020, the year of the pandemic, only 34.

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