The entry into force on June 15 of the so-called “Iberian exception”, by which the Governments of Spain and Portugal obtained authorization from the European Union so that the high price of gas does not spread to the price on the wholesale market of the Electricity that has not been generated with this fossil fuel has meant that the Spanish price of the “pool” has disassociated from the trend of the rest of the European countries to stand clearly below that in force in other large economies in the area.
The price of electricity in the wholesale market (in which sales offers from generation companies are matched with purchase proposals from supply companies) stood at half in December in Spain (46.7% more than cheap) than that of the other large European countries, according to a study by the specialized consultancy Grupo Ase.
The average price in Spain last month was 135.29 euros per megawatt/hour, after including the compensation for combined cycles, while the average price in Germany, France, Italy, the Netherlands and the United Kingdom amounted to 272.67 euros, 101.54% higher.
In 2022 as a whole, the average Spanish price (already added the adjustment for the gas cap) amounted to 209.69 euros, 18.93% lower than the average of the rest of the large nations (258.67 euros). France and Germany had traditionally been, along with the Nordic countries, the countries with the cheapest prices for electricity, “but 2022 marks a before and after,” the report states. The average German price was 234.15 euros last year (11.66% more expensive than that of Spain) and the French one stood at 275.08 euros (31.18% higher than the Iberian one).
“For the first time, the Spanish price is below the German and French prices, due to the impact of the Iberian gas cap mechanism since June 15,” says the ASE Group. In the specific case of December, the higher Spanish price reduction was also influenced by the high renewable energy production in our country (the result of the country’s great commitment to green energy) and the temperate climate of the peninsula, although this last factor also occurs in other countries facing the fear that there were months ago that there would be a winter as harsh as the previous one.
The monthly reports from the Association of Companies with Large Energy Consumption (AEGE) point in the same direction. The latter, with data up to December, reflects that the Spanish wholesale price has remained below those of France and Germany in the period accumulated up to then.
Fortia Energía (the company owned by the electro-intensive industries for the purchase of energy in the market) defended the “Iberian exception” on November 28, which established a cap on the price of natural gas (except for combined cycles), so that The electricity that is generated without the help of this hydrocarbon (nuclear, hydraulic and solar) could not continue to benefit from the high cost of natural gas, making all the electricity that passes through the wholesale market more expensive. Its general director, Juan Temboury, said that this “adjustment mechanism” has allowed “a much better result than that of the rest of the countries.”
The compensation that is now only paid to the combined cycle plants to cover the real price of the natural gas they consume to generate electricity (and which is what critics are basing themselves on to try to question the model) would have to be paid the same without the Iberian exception. What prevented this formula is that, in addition, it would be necessary to continue remunerating hydraulic, nuclear, solar and wind power at the same price as combined cycles despite the fact that they do not consume gas, which would have triggered much more bill. This explains the reduction in prices that has occurred in Spain in relation to countries that lack this adjustment. For this and other reasons, the US credit rating agency Moody’s already predicted on November 16 that electricity would be cheaper this winter in Spain than in Europe.
The inflation data from the European Statistical Office (Eurostat) also corroborate this: Spain is the country with the lowest price level in the Eurozone (19 states up to December) and in the EU (27 nations), and this is very relevant due to energy costs.
According to AEGE, the lower price in Spain has meant that the Spanish electro-intensive industry (in the case of ArcelorMittal, Azsa and other companies) already supports a lower cost than that of Germany (219.38 euros compared to 222.64), although not that the from France (101.21), because in this country, with strong government interventionism, there is a special rate and also its largest electricity company (EDF) is state-owned.
The adjustment mechanism was the subject of much criticism in Spain. The PP described it as an “Iberian scam”. But the liberal governments of Belgium and Austria, as well as the French executive, demanded measures similar to the Iberian exception from the EU. The EU agreed to a cap on European gas with another mechanism from next February 1, which will coexist with the Iberian gas for three months. The European solution was the result of long and tense negotiations between the countries that demand cheaper electricity and those others that, due to their greater energy vulnerability, give priority to guaranteeing the supply. Spain proposed the Iberian exception and accepted the cap on European gas as a minor solution because its demand continues to be to put an end to the marginalist pricing system in force in the EU that guarantees all electricity (except when there is an exception such as the Iberian one) to receive remuneration from the most expensive source.