“The price of electricity is skyrocketing” and “the new electricity tariff comes into force” are headlines that, combined, have been repeated in recent days by the media. The funny thing is that they are different unrelated news that by chance have coincided in time.
The new electricity tariff came into effect on June 1. It basically consists of setting three different prices for energy (kWh), as shown in figure 1. It is not very different from what there was. Now, the billing of the energy term is divided into three periods instead of the two that previously applied to consumers who had opted for the tariff with hourly discrimination (the cheapest).
There is a new aspect: the price in the power term (fixed cost according to the contracted power) that had a single value can now be chosen between two different powers. One is for peak and flat times and another for valley. The latter has a very cheap price. If you do nothing, your electric company will leave you the same value that you now have for both periods.
The new method applicable to the tariff is more rational, as it should encourage a large part of the consumption is displaced outside the peak period. The goal is to flatten the electricity demand that varies a lot throughout the day, which forces to have an installed overcapacity. There are plants (usually gas-fired combined cycle) that operate for only a few hours throughout the year to cover peak demand times.
Covid-19, behind the cost variation
The introduction of the new billing system has coincided with a sustained increase in the price of electricity in recent months (figure 2). This may lead to believe that the new tariff is to blame for the increased cost of electricity, but it is not.
In January there was a substantial increase in cost for a few days, but it was sporadic, mainly due to the storm Filomena. But now the price increase is not a specific event.
In 2020, the price of electricity had been abnormally low compared to previous years. The cause is obvious: the COVID-19 pandemic contracted the economy and, as a consequence, energy demand was reduced and there was a drop in prices (in electricity and other types of energy).
Since March of this year, after the extraordinary success of pharmaceutical companies in managing to manufacture huge quantities of effective vaccines and of states in vaccinating the population, the effects of the pandemic are mitigating and economic activity is normalizing. As a result, energy demand has increased approaching pre-pandemic values.
What does the price of electricity depend on?
The cost of generating electricity depends largely on the sources used to produce it. In 2020, production in Spain was distributed as follows: nuclear (22.2%), wind (21.9%), combined cycle (17.5%), hydro (12.2%), cogeneration (10.7 %), solar (7.9%) and others (7.8%).
Renewable sources, in total, were the majority. But they are subject to uncontrollable factors that present great variability (figure 3), such as meteorological conditions. This requires two things: having an overcapacity of installed power (in the case of wind power, around 4 times more than the average energy it produces) and having power plants shut down, in anticipation that demand cannot be met, which they usually use gas.
The price of gas is increasing due to the great demand and also the sources that generate CO₂, such as gas, have to buy emission rights (a mechanism created by the EU and other countries to reduce CO₂ emissions).
In 2020 the cost of CO₂ emission was on the ground (it reached € 3 / t), but under the new conditions it has risen to more than € 50 / t. This increase is in many ways desirable if we really want to tackle global warming.
Reduce the price at the expense of nuclear
Faced with this situation, the Government of Spain has announced a bill with which he says that the price of the electricity bill will drop.
If you read the document, you are surprised. To a large extent, it consists of making nuclear companies pay even more (it is estimated that in 2020 paid about 60% of the income, not profits, in taxes) because by not polluting with CO₂ they save having to buy emission rights. It is as if the community of neighbors asked us to pay a higher fee for not using the community’s coal heating.
Actually, the bill we pay includes many items, some to cover more than 6 billion euros a year in premiums for renewables. It would not hurt to remove from the receipt those not attributable to the generation and transport of this form of energy, which together with taxes account for more than half the cost.
Penalizing nuclear plants further can make them economically unviable and lead to closure. This would lead to an increase in CO₂ emissions, having to resort to other polluting sources. This has happened in Germany, which closed part of its nuclear power plants and emits more than 8.5 t of CO₂ per year per inhabitant, largely from burning coal, even though it continually announces ambitious emission reduction targets.