Price of electricity to break new record on Friday, averaging €309.2/MWh

For the third day in a row, the wholesale price of electricity will break a new record on Friday, averaging €309.2/MWh. This is a 2.2% increase on Thursday's €245/MWh rate.

According to OMIE, the Iberian Peninsula's electricity market operator, the cost of electricity will be priciest from 7 pm to 8 pm at €350/MWh, and will be cheapest from 4 am to 5 am at €250/MWh.

The previous price record, €288.53/MWh, was set on October 7. Since July, when the previous January 2012 record-high wholesale cost of €103.76/MWh was first broken, electricity prices have made headlines another 21 times. According to experts, they are likely to remain in the spotlight at least in the near future. 

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

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. 

While costs have risen across Europe, Spain is one of the most-affected countries as around 40% of the population has PVPC contracts. 

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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Cristina Tomàs White and Guifré Jordan join Lorcan Doherty to discuss the causes and the consequences of the energy crisis affecting Europe.

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