The price to pay in Spain for electricity is back in the news one more day. After yesterday the wholesale market reached a historical record, standing at 122.76 euros per megawatt-hour, today there is a drop of 3.1%, with the price of electricity standing at 118.99 euros MW /h. This amount represents the second highest cost reached so far in electricity in the historical series. Behind are 117.29 euros on August 13 and 117.14 euros on August 20. The wholesale cost of electricity will oscillate this Friday between a maximum peak of 125.33 euros at 1 in the morning and 106.75 euros at 6 in the afternoon.
The causes of the rise in prices, in addition to the heavy tax burden, are fundamentally two: the price paid for polluting in Europe, that is, the so-called CO2 emission rights, and natural gas, one of the fossil fuels with which energy is produced and which is also reaching a high cost. This, in addition, emits carbon dioxide, like coal, and has to pay the emission canon imposed by the European Union in the midst of the fight for decarbonization.
Electric companies acquire rights in order to pay for the polluting emissions from their plants, whether gas or coal. Subsequently, these costs are transferred to the price of the electricity they sell on the wholesale market. Before the COVID-19 pandemic, the carbon emission contract was around 20 euros, in December 2020 it exceeded 35 euros for the first time. In this month of August and specifically in recent days, it has reached close to 60 euros, specifically 55.72, per ton of CO2.
Decarbonization in 2050
The EU is firmly committed to full decarbonisation by 2050 and this explains the unprecedented rise in the cost of CO2 emissions. The EU Emissions Trading Scheme (EU ETS) is one of the cornerstones developed by the governments of the EU countries for the fight against EU climate change and an essential instrument to reduce economically effective greenhouse gas emissions. It is the main carbon market in the world and the largest.
As experts have commented to elEconomista, “this market works according to the principle of “cap and trade”. A maximum limit is placed on the total amount of emissions that the facilities covered by the regime can emit. over time to cause total emissions to decline. Below the cap, facilities buy or receive allowances that they can trade with each other as needed. The cap on the total number of allowances available ensures they have value” .
They further add that “at the end of each year, facilities must surrender enough allowances to cover all their emissions, and are heavily penalized if they do not. If it reduces its emissions, the facility can keep its excess allowances to cover its future needs.” or sell them to another facility that doesn’t have enough.
Thanks to the decisions taken by the European Union, it has been possible to encourage consumption and investment in renewable energy. However, this increase in CO2 prices is not harmless, since it increases the costs of the companies that must acquire them and, therefore, the final cost of the product for consumers, as has been happening so far this month with the price on the electricity bill of many homes.
Gas will rise in 2022 up to 50%
The energy transition is causing a perfect storm in energy costs. Gas futures prices for 2022 are 50% above those registered at this time for 2021, which is a problem for a good number of companies that have to close budgets and are now afraid of signing supply contracts for the next exercise. Gas prices have increased by 50% for the rest of the year and 20% for the next.
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