Electricity bills set to fall: Why energy prices are at their lowest since June 2021

RESIDENTS in Spain can breathe a huge sigh of relief this weekend – electricity costs will drop from Saturday to their lowest since June 2021.

At a wholesale price of €56 per megawatt per hour (mWh), this is around a quarter of the costs seen in recent months, where figures of over €200 were becoming commonplace.

Prices are around half of those seen in September (€102.56 per mWh) and a third of those of August (€153.34 per mWh).

Whilst Spain's government has worked to cap bills for households and industry – through tax cuts and windfall taxes on energy companies – the cost of electricity generated in the country has never yet fallen to the €53 per mWh seen on June 20, 2021.

Back then, utility bills had been relatively stable for some years, with only minor rises or falls according to the wholesale cost at bi-monthly auctions.

It was in summer 2021, or just under a year and a half ago, that the retail price of electricity at source began to soar.

The price for Saturday, the result of the latest wholesale 'energy auction', is the lowest it has been since then.

In Spain's case, although the conflict in Ukraine has had an impact on fuel prices worldwide, mains electricity and gas are far less dependant upon the Russian pipeline, meaning the efforts requested by the European Union of member States to cut their consumption by at least 15% this winter are somewhat more relaxed on Spanish soil.

Part of the reason for this is that Spain's gas ports supply 35% of Portugal's electricity and between 4% and 5% of that of France, meaning the country generates more than enough of its own not to have to worry about a potential shortage if the Russian supply is affected.

Why have prices fallen?

Some of the reason for the reduction in prices, which will reflect in householders' and business owners' bills, is due to the increasing generation of renewable energy for the mains supply.

Wind power is now a particularly strong element, with over 50% of national electricity production coming from wind farms as at this week.

Additionally, the so-called 'Iberian exception' – which means Spain and Portugal's natural gas prices, used for electricity generation, are capped and has allowed for more leniency within the European Union's requirement, as yet non-binding, to reduce consumption – has kept electricity wholesale prices down.

According to the Iberian Electricity Market Operator (OMIE) and the Iberian Gas Market (MIBGAS - second picture), without this 'exception' being permitted, the cost per mWh would be €91.40, rather than €56.

Over the first half of November, the average daily price for consumers whose electricity bills are linked to the wholesale market – those who do not use an independent supplier, but whose power comes directly from national utility board Iberdrola, branded as Curenergía – has been around €126.02, even allowing for the price cap on natural gas-generated electricity of €6.02 per mWh.

This in itself represented a fall of 22.73% on rates in October and about 34% on those of a year ago, according to ASE Consulting Group.

Analysts consider that the fall in prices of Spanish-generated gas, via MIBGAS, which remains very much below the European average, is part of the reason for the overall reduction in electricity costs.

Additionally, warmer-than-usual temperatures seem to have played a part, due to electricity use in the first half of November being around 9% below that of the same month last year.

Warmer weather and home solar panels mean less demand

Demand for energy generation across the country – the required output to supply all domestic and commercial use – typically averages around 600 gigawatts per hour (gWh), and has not been below this figure since lockdown 2020.

Back then, with the entire nation forced to remain indoors and all non-essential industry and services ordered to close, the country's demand for energy fell to a daily rate of 539 gWh in the April and 560 gWh in the May.

As reducing demand means wholesale prices tend to fall – rather than rising when demand is high – this means Spain's 'extended summer' is keeping energy costs down.

At a time when coats and quilts would normally be in use even in the warmest parts of the country, such as the Mediterranean and south coast, current springlike temperatures mean many residents have not even dug these out of the cupboard yet, so domestic heating has not generally been needed.

Additionally, householders and businesses have been trying to cut their electricity use to save money due to rising bills – overall, domestic consumers used 10% less power in September than they usually would in that month – and a rising number are opting for having solar panels fitted, so that their energy needs are largely off-grid.

Domestic solar energy is close to breaking records, with a total of 1,500 megawatts of renewable power generated in homes nationwide, ASE Group reveals.