The price of electricity will remain at record levels until March due to gas

In Spain electricity has never been paid so expensively, and although there is still an autumn ahead, winter is approaching. The electricity bill has reached historic heights this week, reaching over 140 euros per MW / h on Thursday.

It is a worrying fact, which collides with the prices that were paid last year, close to 1 euro per MW / h at the cheapest times of the year, and close to 55 euros at the most expensive. But, even more worrying, is that the outlook is not good for the next few months.

The relationship between the price of electricity in our country and the price at which natural gas is paid is direct and now, if the historical behavior of gas is analyzed, and the supply and demand situation in which it is In the market for the next few months, everything indicates that prices will remain at these levels, and even higher, until spring arrives.

All the responsibility for the rise in electricity prices cannot be attributed to a single factor, since there are many elements that intervene in this equation: the way in which prices are established in the wholesale market, taxes, regulations, the price of raw materials, the percentage of total generation that is carried out with renewable sources, and with other types of energy, such as nuclear, the cost of carbon dioxide emission rights in Europe. . etc. However, in the rise in the electricity bill that has occurred in recent weeks, natural gas is the main culprit.

The variation in the price of gas has been enormous in recent years, and especially in recent months, due to the distortions brought about by the confinement. In May 2020, the price in our country, according to the data published by the Iberian Gas Market (responsible for managing the market in the Iberian Peninsula) reached a minimum of 4.14 euros per MW / h, in the first months since the arrival of the Covid-19 pandemic, which greatly reduced the demand for the raw material. From that moment until now, the price has multiplied almost 12 times, to the 53.22 euros at which it is currently listed.

A globalized market

The rise in the price of gas does not have a unique component in our country. After the pandemic, as has happened with many other goods in the world (the example of semiconductors is the best known), there has been a mismatch between supply and demand for gas, which has led to higher prices.

Sources in the Spanish electricity sector explain how “the increase in demand, especially in Asia, has been great, and Spain has to compete for the same gas . Europe needs more gas because the flow coming from Russia has dropped significantly”, they explain, and add how “that forces us to look for liquefied natural gas, which is transported in ships. That gas looks for the market that pays the highest price, and this makes the price in Europe also rise,” he says.

The low temperatures that have lasted longer than usual this year have a lot to do with the increase in demand that has occurred in Europe. “Last winter was more intense than expected and, above all, longer,” explain the same sources, “so the filling season for warehouses in Europe started very late,” they point out.

The natural gas cycle

The natural gas cycle implies a greater consumption of raw material during winter, due to low temperatures, while inventories are replenished during spring and summer, which usually means that prices are lower in these seasons.

However, in 2021 this situation has not occurred. “The filling of inventories started very late because gas continued to be consumed in Europe during the months of March and April. This has made demand particularly high in those months, and warehouses are being refilled at a very slow pace due to high prices “they point out. In Spain the gas storage capacity is not high, but it is a European phenomenon that has been transferred to prices in our country.

At the level of these natural gas inventories is the key for the prices of the coming months. According to the data handled by Celsius Energy, at this moment gas inventories are at 68% of the total capacity in Europe, a figure confirmed by market sources, and they add how “at this time last year they were 90%”.

This, together with an even higher demand forecast for the start of the European winter, has led to current gas prices. “If the levels of storage do not increase, the tension of the prices is going to maintain” , explain the same sources. “Europe needs to refill warehouses to ease the tension, because if a harsh winter comes, we could see significant price increases from what we have today. The market is nervous,” they highlight.

The prices that are being paid now in the European market are 50 euros for the first quarter of 2022, but they fall to 30 euros in the second quarter. This will mean that “until the end of winter, the end of the first quarter of 2022, it is likely that this situation will not ease,” they point out. To transfer these prices to the MW of electricity, they must be multiplied by 2, since the efficiency of a combined cycle plant is 50%.

This price forecast for natural gas in the coming months coincides with the statistics that have been seen in the last two decades. “Natural gas is quite seasonal, since its consumption is clearly marked at times of the year, and this means that the annual price maximums are reached at the beginning of December and that from that moment on they fall until mid-March”, explains Albert Parés, expert in seasonal analysis and founder of AnnualCycles.

Between the months of September and January, the average rise that has occurred in the last 20 years is 13.76% for the price of natural gas futures, according to AnnualCycles data. Only in six of the last 20 years has there been a drop during this period. Parés explains how “from the turn of the year natural gas tends to fall in price and has a clear downward pattern”, with an average fall between January and June of 6.91%, taking the last 20 years as a reference.

The expert points out that it must be taken into account that “the price may be relatively manipulated at the geopolitical level, since the main producers, such as Russia or Algeria, are constantly trying to influence the price.”

Little renewable generation

The high price of natural gas has had a particularly significant impact on the electricity bill in recent weeks due to the low energy generation that has occurred with renewable sources in our country during this period. It should be remembered that, in the Spanish pricing system, the composition of electricity generation according to the different technologies used is one of the keys.

If the generation of energy with combined cycle plants (those that use natural gas) is greater than usual in relation to other technologies, a gas that today costs very expensive has a greater impact on the electricity bill.

It must be taken into account that renewable energies are the ones that set the lowest prices in the electricity market , according to data from the Organization of Consumers and Users (OCU). Of course, they have the disadvantage that they cannot be turned on and off with total freedom, since they depend on the weather conditions that exist at all times.

According to data from Red Eléctrica, in recent days, since last August 27, there has not been a single day in which renewable energy surpassed non-renewable energy in the percentage of daily generation. In five of the last 8 days, combined gas plants have captured the highest percentage of total generation, reaching almost 29% of the total last Thursday, the day on which the last price record was set. of electricity.

“The effect of renewables is absolutely definitive,” explain sources from the electricity sector; “There will be much fewer hours in which combined cycle plants are required as the latest technology to meet demand, and there will be cheaper technology,” they conclude.

New regulation of ‘slots’

One of the causes that contributes to aligning the price of gas in Spain with international markets is the new slot regulation that has been in place since last year. In order to have a slot to unload gas on ships, it had to be shown that there was a demand behind it, and only a handful of companies could access them, but now it has been liberalized.

“Anyone can choose to put a gas ship, even without demand. Pure traders can have space to unload, and then choose to unload or not,” explain sources in the sector. This has contributed to the fact that prices in Spain are balanced with the rest of the markets.

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Billy Marshall
Billy has worked as a journalist for various print-based magazines for more than 5 years. He is a science and space enthusiast who aims to excel in the field, especially in human anatomical studies. He curates and edits quality news pieces for The Croatia Times in the science & education genre.

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