Electricity price to surpass €300/MWh for first time on Thursday

Electricity prices in Spain will hit yet another all-time high on Thursday, averaging €302.48 per MWh. 

According to OMIE, the Iberian Peninsula's electricity market operator, the cost of electricity will peak at 9 pm to 10 pm at €345/MWh. At times when there is expected to be a lower demand, the electricity price will be over €250/MWh.

This will be a 3.7% rise on Wednesday's wholesale fees, the second-highest ever. The previous record was on December 15, when prices averaged €291.73/MWh.

These prices affect the 10 million households with contracts in the regulated electricity market, the PVPC. Those whose contracts are in the so-called free market, an estimated 17 million households, pay a fixed amount every month regardless of daily wholesale price fluctuations. In order to obtain electricity bill vouchers, however, people must have PVPC contracts. 

Reasons for soaring costs

Since July, when the previous January 2012 record-high wholesale cost of €103.76/MWh was first broken, electricity prices have made headlines 20 times and, according to experts, they are likely to remain in the spotlight at least into the near future. 

Low natural gas reserves, which have been attributed to geopolitical unrest between the EU and Russia, and are needed to power combined-cycle plants, as well as an overreliance on more polluting electricity sources incurring hefty CO2 emissions rights — only 19.8% of Catalonia's electricity came from renewables in 2020 — are largely behind this increased market volatility. 

There has also been a marked increase in demand in 2021 compared to 2020, when Covid-19 forced most activity to a halt during the strict lockdown months and wholesale prices dropped. 

Mitigating measures

From June 1, there are three PVPC electricity rates that vary according to when power is consumed:

The highest rate is Monday to Friday from 10 am to 2 pm, and from 6 pm to 10 pm.

The middle rate is Monday to Friday from 8 am to 10 am, from 2 pm to 6 pm, and from 10 pm to midnight.

The cheapest rate is throughout the day on Saturday, Sunday, and bank holidays, and up until 8 am Monday to Friday.

On Wednesday, the Spanish government announced the extension of measures to tackle electricity price increases until the end of March 2022. In late June, Madrid lowered the VAT for electricity from 21% to 10%, while earlier in September, the Spanish government lowered the special tax on electricity from 5.1% to 0.5% and suspended the 7% tax on electricity production.

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