The upward spiral that has gripped the price of electricity for months has reached a new unfortunate mark: it will leave this August as the most expensive month in history, with an average of 307.8 euros per megawatt hour (MWh), and will reach Wednesday the second highest price ever recorded. This record comes despite the cap on gas that came into force in mid-June, and which Spain now wants to extend to a European scale to try to mitigate an energy crisis that is on the way to becoming an economic recession. This mechanism has allowed Spain and Portugal to significantly reduce the price of electricity in the wholesale market —albeit at unprecedented levels— compared to the other surrounding countries.
Until now, the highest monthly price in the series was 283.3 euros/MWh registered last March, a reflection of the unstoppable rise in gas prices caused by the Russian invasion of Ukraine. The most expensive August, on the other hand, had been that of 2021, although with a much lower price than this year (105.9 euros/MWh on average). To find the third August with the highest prices in the entire historical series, we must go back to 2008, when the megawatt hour reached an average of 70.1 euros. A ridiculous figure compared to the levels that the pool, as the wholesale electricity market is known, has been dragging in recent months.
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The price registered by the Iberian Energy Market Operator (OMIE) for this Wednesday is 476.39 euros per MWh, 3.7% more than today and the result of adding to the 187.30 euros of the auction the 289.09 euros of compensation to combined cycle plants for the cap on gas. This amount is the second highest ever —only surpassed by 545 euros/MWh on March 8— and the highest since the gas cap began to be applied on June 15, after Brussels recognized the Iberian exception of Spain and Portugal: a market with few interconnections with the rest of the continent and with a high penetration of renewable technology.
This exception has made it possible to moderate the increase in electricity prices in the wholesale market —which directly affects consumers with a regulated or pool-indexed rate—, limiting the weight that the price of gas has in the formation of electricity prices. Without the cap, this Wednesday the electricity would have reached 533.5 euros/MWh. In the other countries, which do not have any limit on the price of gas, the situation is even more extreme: this Tuesday, the French market registered the highest prices in the Old Continent, with 743.8 euros per MWh; the Italian pool reaches 706 euros and the German exceeds 660 euros. The arrival of the cold does not promise improvements either. On the contrary: fears are growing that Russia will cut off all supplies to the EU.
For this reason, the president of the European Commission, Ursula von der Leyen, announced on Monday an “emergency” intervention in the European electricity market to respond to Russian energy “blackmail”. The number one of the Community Executive argued that the current electricity prices, which she has branded as “exorbitant”, are exposing the “limitations” of the system, in which the final price of electricity is set by the latest technology that enters to cover the demand, the most expensive. In this case, the gas.
In this structural reform, Spain wants to play a leading role: at the meeting that the energy ministers will have on September 9, it will propose that the Iberian exception also be applied to the other countries of the community club and will propose limiting the price paid for CO₂ emission rights. Brussels is also studying measures to curb speculation in the financial markets.
The Spanish Minister for the Energy Transition, Teresa Ribera, assured this Tuesday that Von der Leyen’s announcement is an “important” decision that should have been taken “a year ago”. “It is important to know how the price of gas can be dissociated from the price of electricity”, she said in an interview with RAC1. “The faster we are able to get natural gas out of power generation and use electricity primarily from renewables, the easier it will be to manage this situation,” she added. The third vice president has assured, on the other hand, that it is 99% “impossible” for there to be “any type of cut” in the energy supply” in Spain, which has a much more “solid and diversified” system than other countries in the environment and an “extremely solvent” electrical network.
Price pressure
The confirmation that this August is going to be the most expensive in history for the electricity market comes on the same day that the provisional inflation data for the month is published in Spain. According to the National Institute of Statistics (INE), the general index fell four tenths in annual rate, still remaining at an unprecedented 10.4%. The agency explains that the decrease, if confirmed, is due to the drop in fuel prices and, to a lesser extent, to the drop in liquid fuels. “On the contrary, the increase in prices stands out, among others, for electricity, food, restaurants and tourist packages,” he points out in a note published this Tuesday.
For this reason, core inflation, which does not include fresh food and energy products and is considered a better indicator of price trends, continues to push upwards. In August, always according to the provisional data of the INE, the advance has been three tenths, up to 6.4%, the highest rate since January 1993.