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Date: July 6, 2022 5:02 am

Why did he grow up so much?

“The story is long, but it can be boiled down to one factor: the exploding price of fossil fuels used to generate electricity. Over the past year, natural gas prices on international markets have risen fivefold, reaching a tenfold increase in early March, just after the start of the war. And the coal has tripled. As a marginalist type of system, in which the technology that provides the last megawatt hour (MWh) determines the price of all the electricity that enters the market, this price explosion has gradually polluted the rest of the energy sources. The numbers speak for themselves: 50 or 60 euros per megawatt-hour in the pre-pandemic wholesale market turned into almost 200 in the blink of an eye.

What is made in Spain? And in the rest of Europe?

– Until the last 15 days, when the famous gas cap went into effect, the Spanish authorities were considering two ways to try to contain the escalation: fiscal – with general tax cuts (VAT, generation and special) – and cutting benefits for electricity companies in addition to expanding social obligations that can be adopted by low-income households and large families.

“Tax cuts and increased social ties have eased the pressure, albeit partially, on population groups as well. In the first case, there is a paradox that consumers in the free market (where terms are negotiated between the consumer and their electricity company) have been paying less in recent months than they did a year ago: their rate still reflected pre-crisis prices. and, at the same time, their tax burden was significantly reduced. But this effect is reckoned: there are several households that have not yet had to renew their contract with higher prices. For its part, the reduction in excessive remuneration of electric companies had a very cautious effect: its structure allowed the companies to leave easily.

– Unlike other European countries such as Italy, the UK, Greece or Hungary, Spain has not yet approved a specific increase in taxes on excess profits of energy companies. This mechanism, approved by the European Commission, is gaining popularity in the Spanish government: the third seat in the executive, Yolanda Diaz, wants it for now, and Minister Teresa Ribera has opened the door to raise taxes on electricity companies, oil companies and gas companies in the next budgets.

What contract do I have and which one suits me?

– Spanish households can choose a regulated market – a flat rate for all consumers with daily and hourly variations depending on what happens in the wholesale market (where the price spike happened) – or a free market – depending on the electricity companies agreeing terms directly with clients-. The former suffered from the crisis much more than the latter: they had no protection, and the increase in electricity prices hit their pockets immediately and disproportionately. After a few months of protection, those who were on the free market are now beginning to suffer terrible upgrades as marketers internalize the new pricing environment in their offerings.

“If the gas cap works, the incentive to move from the free market to the regulated market (aka PVPC) will be great. For those who have to enter into a new electricity contract, the regulated market is likely to be more convenient, which tends to be cheaper in the long run because the margins of electric companies are lower.

What is a gas cap? Will it work?

“The mechanism, which has no precedent, is that both Spain and Portugal — built as an energy island with the approval of Brussels — have the right to limit the price of gas and coal used to generate electricity. Purpose: to avoid pollution of the rest of the market. In turn, consumers themselves must compensate for the costs of power plants that burn both types of fuel.

“The government argues that the net impact of this addition and subtraction will be positive both for users who are on the regulated market and for those who, even while on the free market, have an indexed rate. These first applications, however, raised a wake-up call: reality, always so stubborn, shows signs that profits will be much higher on days when the share of gas and coal is minimal than on those in which gas is generated. a large amount of electricity.

Will prices drop soon?

“There is reason to believe that limiting the price of gas for electricity generation will ease the pressure in the medium to long term. But there are those who suggest that autumn and winter will be turbulent in international gas markets, always to the tune of Putin’s war, which will add pressure to the bills. Even if the price of active gas is limited: the higher its price, the more compensation consumers have to pay. A significant reduction or at least stabilization of electricity and gasoline prices is necessary to reduce inflation, which has become a big economic problem of our time. —EPS


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