Why is the price of electricity negative and we don't get our money back?

On Monday between 2 and 5 p.

Oliver Thansan
Oliver Thansan
31 March 2024 Sunday 22:23
10 Reads
Why is the price of electricity negative and we don't get our money back?

On Monday between 2 and 5 p.m. the price of electricity in the wholesale market was -0.01 euros. That is, negative. Which means that whoever injected that energy not only did not receive income but also had losses. Despite this inconsistency, the headline of negative electricity prices has led many consumers to think that in that case they would be compensated on their bills. It will not be like that and there are reasons that justify it. Let's see:

The wholesale electricity market works as an auction that matches electricity offers with demand. Normally, renewable energies are offered at zero euros to take advantage of production moments. When there is sun, photovoltaics and when there is wind, wind. When its production is exhausted, production from nuclear, hydroelectric and, lastly, gas combined cycles enters. The last one to enter sets the price.

On Monday between 2 and 5 p.m. the price was -0.01%. Negative for the first time in history and due to a combination of factors. The first, the DANA baptized as Nelson, has brought the rainiest Holy Week since records have been kept, as well as very strong winds across the whole of Spain. Which explains a strong generation of wind and hydroelectric renewables to which on Monday was added the sun that had been absent in previous days. In this atmospheric state, seven autonomous communities, including some of those with the most installed industry, such as Catalonia or the Basque Country, celebrated a holiday on Easter Monday, causing demand to suffer a sharp decline. The entry of more supply than demand into the system has forced some generators to pay supply for their generation at a loss.

Yes. That is one of the problems that the electrical system in Spain now faces. The boost that renewables have received means that when certain atmospheric conditions occur, such as a lot of rain, or a lot of sun, or a lot of wind, or all of them combined, there is not enough demand for electrical energy and discharges occur.

According to the consulting firm Aurora Research, in 2023, these losses represented more than 1% of the total annual renewable production on average in Spain, with figures in some provinces exceeding 10%. In euros, it is estimated that it would be about 2,000 million per year in 2023 and the trend is increasing. The reason is that there is no demand and that the current electrical networks do not have enough capacity in some points to transfer the electricity that is produced near them.

Because what has set a negative price is the one set in the wholesale auction attended by large producers and generators. The information that is set in that auction is only one of those that make up the price that finally appears on the invoice to which other costs such as tolls, charges and taxes must be added.

No customer will have a refund. Those that have fixed price contracts for obvious reasons. Neither do those that have them linked to the regulated price PVPC. Along with the already mentioned system charges, the PVPC calculation also changed starting in January.

To avoid the direct impact of increases in the price of the wholesale market as has occurred during the energy crisis, the link with that price is being corrected. During 2024, the reference is calculated 75% with the wholesale market price and 25% with the futures market. Futures will gain weight over the years, in 2025 they will be 40% and in 2026 they will represent 55% of the total price of electricity.

Energy experts expect the price of the electricity bill to continue falling as it has done in recent months. In March the average price was 20 euros per megawatt hour, very far from the more than 300 that it usually marked in the midst of the crisis, even below a strategic reference, 45 euros. That was the price that the Government set in its decree at the end of 2023 to dismantle aid to alleviate the energy crisis. If the price of electricity fell below those 45 euros, the VAT percentages prior to the crisis were automatically recovered. So since in March that price was lower, as of April 1 the VAT applied to electricity is, again, 21%. That is, the impact of Monday's negative prices will barely be noticeable.

For the final consumer, the situation of zero or negative prices is good. He will pay less. It is not, however, for investors. They carry out their projects based on a price of electricity that is currently below what was estimated when the more than 60GW projected in Spain for new renewables were drafted. Some in the middle of the price crisis and who did not estimate such sharp drops and so quickly. This could imply that some of these projects are suspended in the short term due to lack of profitability.

The electricity sector is clear that demand must be stimulated. More aid for the widespread acquisition of electric cars, boiler changes. Only if there is more demand in the system will all the renewable energy that is scheduled be needed.

The sector also points out the inconsistency of increasing taxes such as electricity production, generation or VAT itself for a product (electricity) that they want to incentivize.