The Third Vice President and Minister for the Ecological Transition, Teresa Ribera, arrived in Naples on Wednesday, where she attends the G20 meeting on environment and climate on Thursday and Friday, after defending in the Congress of Deputies the royal decree to reduce the VAT and temporary suppression of the electricity tax to alleviate the unstoppable rise in the price of electricity, which is causing concern among Spanish consumers. He landed in the Mediterranean city with tempers heated by this circumstance. Electricity marked the highest price in history last Tuesday and since then it has been perched on highs, although with some almost testimonial reduction. This led the minister to send a letter to the Vice President of the European Commission, Frans Timmermans, in which he asked him to open the debate on changing the design of the energy system, especially in setting prices, based on the marginalist market, that is to say, that of the latest technology that enters the pool (the combination of energy, wind, photovoltaic, hydroelectric, nuclear, gas …) that sets the price in the wholesale market. In this case, it is natural gas, which is used in combined cycle plants, the last to enter the system. As it is the most expensive due to strong demand from China and restrictions from Russia, it contributes to skyrocket the price of electricity. Added to this is the incidence of the high price of CO₂ emission rights, above 50 euros a ton, almost 30% more than a year ago.
Therein lies the debate opened by the minister. “We are open to the analyzes that have been made on how to design the market so that it works, either by incorporating renewables, with low operating costs, once the output of energies generated with fossil resources, at higher prices, has been facilitated. There are different options; But it seems essential to us that from the European regulatory framework there are signals that cover more innovative initiatives on the marginalist market with the aim of generating adequate price signals and a fair distribution of the benefits of the transformation of the generation mix (the energies that they enter the system every day to set the price) ”, says Ribera in a telephone conversation with EL PAÍS.
The vice president proposes a modification of the system and highlights that “when there is a list of technologies that have prices that are managed in a range with hardly any differences, it is easy to set a marginal cost; but when the difference is so great and the energy that is taken as a reference [el gas natural] it only represents between 10% and 15% of the electricity that is produced, it is not reasonable that citizens are paying such a high price ”. In other words, Ribera admits that the system would be adequate if there were little price difference between some energies and others, but at present, when there are great differences between the cheapest energy and natural gas, this means that even if only 10% of daily energy generated by this source, all are paid at the price of gas, which triggers the price of electricity.
Reforms to reduce charges and tolls
Teresa Ribera also addresses the changes made in the Spanish system. “We have looked for other ways of capturing prices in the wholesale market. We have gone from being a desert in PPA firms [contratos de compraventa] to become the Mecca of PPA; we have gone from having a single rate to several; there is more and more self-consumption; we are undertaking structural reforms paying attention to the objective of reducing charges and tolls and thinking about how we can contribute from all sectors with the National Fund for the Sustainability of the Electricity System ”.
“It is important to remain calm,” he says while pointing out the bad leg that prices have shot up just when the new tariff system was launched to change consumer habits. “There was no report that handled this price reference,” he explains. Then he adds: “You have to focus on population profiles where the impact is real, not only the poorest, but also the middle classes. We have to make an effort, while the market regulation changes and we achieve that there is a different attitude in Brussels, not only in the vulnerable consumer, we have to extend it upwards, not exactly with the same measures as those of energy poverty because the format is different, but with another type of more protected rate. It is a substantive debate that cannot be improvised ”.
And he completes: “We still have a deep reflection on taxation because when we have a completely renewable market and the price stabilizes around 40 euros MWh on average, the fiscal accounts will be different.
Doubts about Brussels’ management of the CO mercado market
In view of the reaction of politicians, consumer associations and citizens, the current system is highly questionable from an economic and social point of view. It is also true that the cost of CO₂, which will be discussed in the package Fit For 55, its legislative proposal to achieve a 55% emission reduction in Europe by 2030. Companies that produce emissions have to buy CO derechos emission rights. There is a market for the sale of these rights, which this week is in full swing. For the minister, emission rights represent a transformative element that facilitates investments, but the price that is being reached is becoming a kind of relentless guillotine for consumers. Ribera wonders if it is effective that the management is centralized in Brussels. “It is a debate that begins now. We do not prejudge, but we do have some doubt as to whether it is the most appropriate, “he argues while it remains in the air whether a system of emission rights trading should be assigned to different sectors with different rules.
“The emissions market has burst. It has been blown up “
According to Ribera, “if this mechanism serves to give investment signals, then the price has to be kept at a reasonable threshold”. Remember that the Commission’s forecasts contemplated that it would be around 25 euros for 2025 and 50/55 euros for 2030. “This has exploded, it has been blown up. If it was not even contemplated, it is worth reviewing “, he says, adding:” Perhaps the most reasonable thing to think is that, once the Commission acts as the central bank (that is, it controls liquidity and, therefore, the prices in which it can move), we can consider which are the operators that can access the market. If only incumbents can operate [las plantas que están obligadas a comprar y vender derechos] prices can be controlled. If anyone can buy, it is very difficult to maintain the investment format ”.
There he puts his finger on the sore: “Today we know that one of the reasons why prices have risen is because there has been a position taken by very different investors, sometimes from outside the EU, who know that this market has gone from being a transforming vector to a kind of commodity (product of commercialization that can be exchanged for a similar one, such as raw materials). This is tricky, because we want it to function as a transformative vector, not as something to make money on. Investors realize the shortage of CO₂ and therefore invest ”.
In his opinion, difficulties are generated in the management of the system with a notable impact on consumers. “We must ensure that the transformation of the energy system is positive and generates benefits as quickly as possible for consumers. And not a system in which there are other benefits for actors that are not fundamental in this transformation process, ”he says.
Gas will remain expensive until February or March
The emission rights market is one of the reasons why the price of electricity has soared along with that of natural gas, which suffers huge increases due to strong demand in Asia (mainly China) and because Russia has closed the supply tap. This circumstance has caused Poland and Germany to slow down the energy transition and consume more coal, which is now cheaper than gas. As a consequence, there is a kind of incentive for investors and damage for the rest, who suffer the consequences of being a single price. The Commission will review the market outlook in August, with the issue of whether rights are withdrawn for next year, which is viewed with concern by many European countries, including Spain, especially since it is estimated that gas will remain expensive until February or March, always depending on Russia.
For Ribera, Timmermans must be encouraged to address the substantive debate. “We are going to have to beat the copper. There is a group of countries concerned about social effects. It’s going to cost us. It is important to insist on it. I am not suspected of wanting to burst the emission rights market, or the CO₂ signal or the energy transition; But, if it is not alleviated, I see serious risks in the process for domestic and industrial consumers. It cannot be that Europe’s industrial recovery is hampered by a lack of calculation of the real capacity of this impact. From the point of view of the domestic consumer, the same thing happens. It is necessary to think about a functioning of the electricity market adequate to what the market is today, in which technologies move at very different prices. That requires a different answer, it is no longer worth a single price. What I think is that you have to think about the range of measures ”.