The use of coal as the primary source in thermal power plants – inactive in Spain, with few exceptions – would lower the wholesale price, according to industry sources, between 2 and 4 cents per kilowatt, which is the difference between the price in the wholesale market in Spain and those of Germany and France, according to such estimates. Today electricity in Spain and Portugal will be 2.2 cents more expensive per kilowatt than in Germany and 3.3 cents above the price of France, a country that has a high component of nuclear energy. According to this criterion, the price that would govern today in Spain with the contribution of coal would be at levels similar to those of last Friday: above 118 euros per megawatt (11.8 cents per kilowatt), which is the price that will be today current on the German market.
However, the advantage of the wholesale price of electricity in countries such as Germany or France with respect to Spain is not attributable exclusively to the coal competition and the largest French nuclear component. The higher temperatures in southern Europe partly explain why the southern countries are the ones that, together with the United Kingdom and Ireland, usually have the greatest shortages on the continent because heat – such as excess cold – triggers demand, which that increases the price.
The Spanish economy is also growing at rates of 19.8% year-on-year (latest data from Eurostat, corresponding to the second quarter) compared to advances above 13% as an average for the EU and the Eurozone, and 9.2% for Germany. Only France (18.7%) is close to the Spanish rate, but the neighboring country has a larger nuclear generation park to meet the increase in demand. In turn, Spain and Portugal have few interconnections with the rest of the continent, which does not allow them to benefit from cheaper imports with the same intensity as Central and Nordic Europe.
The low contribution of wind power has been conspiring in recent months with the high cost of natural gas and carbon dioxide (CO2) emission rights. While the price of electricity has multiplied by 3.5 times in one year, natural gas has done it by 5.5 and CO2 rights by 2.11 times.
In January 2018, the then president of Asturias, the socialist Javier Fernández, declared that dispensing with coal as a backup technology for renewables led to the risk of relying on natural gas, more expensive than mineral.
The imposition of higher emission rights to coal by the EU due to its greater polluting effect placed thermal power plants out of the market in price and this precipitated requests for the closure of these plants since 2019, coinciding with the great upward spiral in the price of the rights .
Since then, coal ore has in turn entered a trend of increasing scarcity in the international market (It is at levels not seen in thirteen years), in line with the rise in raw materials in general (they have become 60% more expensive since March 2020, according to the Bloomberg index) and in parallel with the crazy trend of natural gas , which has gone from trading from 9.4 euros per megawatt / hour a year ago to 52.32 today.
The rise in natural gas (mainly due to Asian hoarding) has shifted part of its demand towards coal, which has contributed to strengthening the appreciation of the price of this mineral in the market.
The price of natural gas is in turn serving as a parapet so that hydroelectric plants (with much lower costs and which are not penalized by CO2 rights) offer prices close to those of gas, which allows them large profit margins but without losing their priority in accessing the auction in the wholesale market. This practice adheres to the opportunity cost principle that governs the marginalized European electricity market. The Minister of Ecological Transition, Teresa Ribera, said in Congress on Monday that the skyrocketing prices of electricity in the last three months were formed despite the fact that in 65% of the hours in June, 64% in July and 59 % in August the technology that set the price for all the others was not gas but water.
The President of the Government, Pedro Sánchez, affirmed this Wednesday that the executive “takes charge of social concern” about the price of electricity and that his cabinet is “acting and will continue to act” to correct it although – as he said on Monday Ribera in an implicit response to United We Can – with measures that respect, he said, the European legal and regulatory framework. Sánchez explained the decisions already taken and demanded that the parliament approve the Government’s decree-laws as quickly as possible to curb the “benefits that have fallen from the sky” of nuclear and hydraulic energies and so that all energies assume part of the cost of the former premiums for renewables, which today only apply to electricity.
Eddie is an Australian news reporter with over 9 years in the industry and has published on Forbes and tech crunch.