Monday, June 5, 2023

Wind and rain bring power prices down to lowest level since May 2021

Barring an unexpected turn in the last week of 2022, the darkest year on record for electricity consumers, the market will wrap up with a much less bitter ending. The price of electricity in Spain will drop this Thursday to 52.51 euros per megawatt hour (MWh), the lowest level since May 2021, before the energy crisis began to show its claws.

The reason for this decrease is to be found in the recent return of rain – which has brought hydroelectric power plants out of the doldrums of the recent past – and of wind – which will boost wind generation. The two technologies would add up to more than six out of every ten megawatts generated and substantially reduce the burning of natural gas, by far the most expensive source for generating electricity.

The fall this Thursday will be especially evident at dawn, when consumption falls and wind production rises: between midnight and 4 a.m., prices will drop to a little over 30 euros per MWh. Between noon and lunchtime, when they will be around 40, according to figures from the Iberian Electricity Market Operator (OMIE).

However, a little less than four out of ten customers will benefit from this cut in the wholesale market, also known as PVPC with regulated rates. For this group of customers, hardest hit by the brutal rise in prices over the past year and a half, the incentive to turn on the ovens the day before tomorrow for Christmas Eve dinner is particularly clear.

mix The electricity on Christmas lottery day would be a good anticipation of what the matrix would be like in the near future, when large-scale deployment of energy would confine gas to a very discreet background. This Thursday, green sources will jointly contribute about 70% of electricity generation; A figure that rises to around 90% if nuclear is added, also free of emissions. The share of wind energy alone will be 38%; hydropower, 26%. The combined strength of both would make cycles—gas plants, which drive up prices almost every day—virtually irrelevant. They will contribute less than 1% compared to 15% a week ago.

“The drop in prices responds, above all, to an increase in wind power production, which will skyrocket this Thursday,” said Juan Antonio Martinez, an analyst at ASE Group, one of the largest energy aggregators in Spain. “If we add to that the increase in hydropower flowing [la no regulable, que opera en función del agua que se desembalsa de manera constante] And that nuclear power plants are operating at full load, we have the full picture.” Reservoir reserves for hydroelectric use have risen nearly seven points in the past week. “And the price of gas is falling, too, so that It’s a little more expensive, it’s a little less expensive,” concluded Francisco Valverde from Manta Energy.

Noting that the seven nuclear reactors aren’t scheduled to shut down until nearly spring, Martinez says, “It would be logical to think that, by then, we’ll have a brake on electricity prices when the wind blows.” There is a compelling reason to think that inflation – which has a significant weighting of both electricity and fuel in its calculations – has already begun to form a clearly downward trajectory.

Lower demand and higher gap than in the rest of Europe

That, on the supply side. With regard to demand, there are also reasons that explain the gradual decline in prices above the €300 per MWh set by the Spanish wholesale market at this point in 2021. In November, electricity consumption fell by 9% in Spain. In gross terms, it has contracted more than 7% so far in December, according to data from Red Eléctrica de España (REE). “It’s also helping to drive down the price at auction”, explains Martinez.

The difference in prices between the Iberian electricity market and the rest of the continent, stable in recent days, will be particularly evident this Thursday. All in all, despite a general drop in prices across Europe, once the cold wave was over. At the gates of Christmas, Italy is around 240, compared to just 50 euros per MW in Spain. and France and Germany, 200 euros per MWh.

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