The dark side of negative electricity prices | National and international economy

April 1 will go down in history as the day on which the electricity market crossed a threshold that many European countries had already crossed, but this threshold was resisted in Spain: the price of electricity fell below zero for the first time. It did so for the minimum (one cent per kilowatt-hour), but the feat was repeated shortly after: Friday, Saturday, Sunday, Monday and until yesterday saw periods of negative prices due to a combination of factors: hydraulic, at maximum; Good tone for wind and photovoltaics. And some contagion effect from the rest of Europe: many negative hours in the Iberian Peninsula also coincided with values ​​below zero in France, Belgium, the Netherlands and even Germany.

After a series of historical records of the energy crisis, which brought the electricity bill to unimaginable levels, comes the opposite: zero and negative prices in various parts of the day. This is a relief for the more than eight million consumers who choose the regulated price and for those with contracts linked to the wholesale market, but it is also a cause for concern in the sector. Concerns have risen dramatically: if these minimum values ​​persist in the wholesale market, this will ultimately discourage investment in renewable energy projects to complete the energy transition.

“In March and in the first days of April, the average income from PV plants was lower than their average costs. These prices will slow down investment. Without investment, it is not possible to Completing the energy transition.” The academic, one of Spain’s leading experts in energy economics, calls for reopening the debate on whether the current marginal system is the best way to set the price of electricity. This is something that can only be changed in the European sphere.

PV producers received €10 per MWh pumped into the grid, compared with the €30 to €40 they needed to start turning a profit, according to data from Javier Revuelta, senior analyst at consulting firm Afry. It is estimated that wind energy generates 14 euros per megawatt hour, a far cry from the 40-50 euros it needs. “It is true that we are talking about a month, that what matters is the whole year, and that those numbers will rise significantly from June… but one thing is clear: producers already know that they will earn very little.” For a large part of the year, especially in the spring.

Like Fabra, Revuelta sees the first negative prices in the Spanish electricity market as just “anecdotal”. “The real problem is that there are more and more working hours at zero or very low rates and demand is not taking off,” he points out while asking the government for speed: “Until the government finds a way to make storage economically viable.” The problem will still exist. “It is urgent.” Both pumping stations and batteries are called upon to play a stabilizing role: limiting the discharge of (waste) zero-emission energy in the central hours of the day, when renewable and nuclear generation is greater than demand, and flattening the price curve.

Spain today has approximately 31 GW of installed wind capacity and approximately 26 GW of solar PV capacity. Both figures will grow strongly in the coming years: PNIEC, the government’s great energy roadmap, estimates that the former will double between now and 2030, while the latter will exceed 76 gigawatts, three times what it is today. This growth will translate into lower prices: 28.5 euros per megawatt hour on average, according to the same official calculations. Necessarily, with many hours at zero prices. That is, the situation is very similar to what happened this March and April, but throughout the year.

“As long as demand does not rise, these prices are very bad news for projects that are in the implementation phase and those that are in the final decision-making phase. It is logical for promoters to hesitate, especially in the case of photovoltaics,” emphasizes Christina Rintel. Lead expert From Aurora Energy Research in Spain. “Another risk is that they are also starting to move to the PPA market, where a few months ago no producer signed a price of 33 euros per MWh and now that is no longer the case…” he points out. To bilateral contracts between electricity generating companies and consumers, which until now served as a kind of refuge from volatility. “With these prices, uncertainty is maximum. This is the worst that can happen to investing in renewables.

The zero prices come at a time of particular concern in the Spanish renewable energy sector, concern about social opposition in some areas, and the spread of taxes. To a man In some societies, first of all, the cost of capital that has not stopped growing in recent years: those who had to raise capital in recent months, after the brutal rise in interest rates, saw how interest rates fell to the minimum. Future profitability. And now low prices are added to this cocktail, which especially affects small players (those with less financial capabilities and those who are waiting for the first drops of the ECB like water in May).

The formula chosen by many developers to avoid further damage from falling prices in the wholesale market has been to sign long-term bilateral supply contracts (known as power purchase agreements in energy parlance). Although they typically carry a negative premium over the futures market – especially if signed in 2022 and early 2023 – these types of contracts guarantee reasonable profitability for many years, reducing uncertainty.

Recognizing this aspect B of the minimum electricity values ​​- “We need investments that are sustainable over time, and it is clear that if zero prices are reproduced too often, they disrupt the plans of the promoters; the third deputy head of the government, Teresa Ribera, admitted a few days ago, saying: “We must find a point of balance. The Executive has just opened a reform of renewable energy auctions to public consultation, which is an alternative for solar developers to escape the wholesale market.” The market, increasingly depressed.

Although the risks of these minimum prices to investors’ attention are “obvious, because the consumption periods are very long,” in the words of Rafael Salas, a professor at Complutense University, there are also positive points. “It is demanding for electricity, especially for an electric car: the possibility of charging it at almost zero cost for users who are on the regulated market or who have a price linked to the wholesale market is very attractive,” says the other side. .from the phone. “Also for the intensive electrical industry, which has more incentives to settle in Spain. And for batteries, because when this line passes, the differences between the most expensive and cheapest watches of the day will increase.

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