Ribera admits that this reform will take time to reduce the bill, so he advocates continuing with the Iberian cap for at least another two years
The proposal that the Council of Ministers studied this Tuesday to reform the European electricity market in which the price of electricity is determined argues for limiting the so-called “falling from the sky” advantages of the power stations that benefit from the current model in which costs are high. gas brings millionaire income and increases the bill of light. The idea of the Ministry of Ecological Transition, which prepared this analysis, insists on applying a regulated generation price for nuclear and hydro power.
This is one of the great novelties of the future system defended by Spain, whose proposal has already been submitted to the European Commission. Brussels intends to open a complex and intense debate and negotiations between the 27 member states to change the current daily ‘pool’. That is, the mechanism that determines the electricity price every day and that has led to record prices in the course of 2022 with peaks in the months of March and August, when consumer receipts were affected.
By limiting the price the energy system would pay for nuclear and hydropower plants, Spain aims to limit revenues from these technologies, which now command a price as high as the price normally set by gas-fired power stations – the most expensive ones -, regardless of the fact that it costs them much less money to produce electricity. The Spanish proposal does not oblige all countries to adopt this arrangement, but it does provide the possibility that, in the case of the current government, it will be willing to apply to limit the benefits that have fallen from heaven.
However, the theoretical benefits of the new mechanism will take some time to materialise. This was admitted by the third vice-president and minister for the ecological transition, Teresa Ribera, in her speech after the Council of Ministers: «It is likely that it will not have immediate benefits, but it would gradually displace the way of energy contracts. with the short-term market term and volatility would gradually decrease significantly over time,” he indicated at a press conference. Aware of this reality, the executive wants to remove the Iberian limit (the mechanism that limits the price at which natural gas is paid to electricity up to 50 euros/MWH) until the end of 2024. That is, two more years. Ribera calculates that this tool with a regulated rate has saved an average of about 150 euros per family, about 4,500 million euros from June until December 2022.
The future pricing mechanism, as proposed by the Executive, goes through a combination of two systems. On the one hand, the current one, based on daily prices based on demand and conditioned by the latest technology that enters the system and determines the final price. The latter installations are usually the combined cycle installations that use gas. In other words, gas continues to be remunerated in electricity at the price that natural gas costs on the international market. This does not change.
What does change is the pricing system for renewable power (basically photovoltaic wind and solar), as well as hydraulic and nuclear. It could be that Community legislation allows electricity companies to have long-term energy contracts, compared to the daily price they now charge in the market. In other words, it is about the new mechanism “ensuring price stability, avoiding stress, supporting the new construction of renewables, distributing costs fairly and avoiding non-red benefits,” according to sources of the department headed by the third vice president, Teresa. Ribera.
The new system would result in greater stability of household and corporate accounts. And while the Executive insists it will be, they have not provided any data on the calculations they have made of the positive impact of the new European electricity pricing mechanism. “Everything will depend on the electricity mix of each country and the implementation of renewable energy,” they indicate in Ecological Transition. In any case, they point out that Spain “is ahead because we have a lot” in, for example, wind or solar technology.
The President of the European Commission, Ursula von der Leyen, has already argued in recent months for a change in the electricity pricing system at community level. This requires amending the Internal Electricity Market Directive, which dates from 1998, when there were hardly any renewable energy sources.
Source: La Verdad
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
