Study: Iberian Mechanism reduced light price by 24.6% on average in Spain

The Iberian mechanism that set a ceiling on the price of gas for electricity production made the designated regulated electricity tariff in Spain on average 24.6% cheaper, according to a study that Lusa had access to this Friday, 30 September.

The mechanism, agreed by Spain and Portugal with the European Union, “has achieved its main objective: PVPC regulated tariff prices [Preço Voluntário para o Pequeno Consumidor] were, on average”, between June 15, when it started to be applied, and August 31, “24.6% lower than they would have been without the measure”, reads the study by the Spanish business school ESADE, which sign four academics, Manuel Hidalgo-Pérez, Ramón Mateo Escobar, Natalia Collado Van-Baumberghen and Jorge Galindo.

The Spanish regulated tariff, or Voluntary Price for Small Consumers (PVPC), is indexed to the price of gas in the wholesale market, that is, the price that electric utilities pay when they buy gas to produce electricity.

With the Iberian mechanism, a maximum price was defined for the gas used to produce electricity and the producing companies are compensated for the difference in relation to the real value in the market.

Compensation is shared by consumers who have a regulated tariff, to which new contracts are added and consumers who have other tariffs and renew their contracts.

The ESADE Business School study aimed to assess the effect of this mechanism on the bills of electricity consumers in Spain, using “advanced econometric techniques”, as the authors explain.

“The results of the estimate indicate, with high confidence, that the average price of electricity for consumers in the regulated market”, which in Spain represents the largest share of consumers (about 40% of the total) “would have been between 19% and 30 % higher” if the mechanism did not exist, reads in the study.

But in addition to the impact on the final price of electricity, the study evaluated the possible effect of the Iberian mechanism on gas consumption for electricity production and possible “leakages” to “outside its scope of application”, that is, greater energy exports to France, with the financing of the lower price than in other markets being borne by Iberian consumers, who are the ones who pay the compensation to the companies.

In this context, the study concludes that the introduction of the mechanism “may have generated less desired effects”, the first being “an increase in the use of combined cycle power plants at the expense of a lower use of hydroelectric production”, which does not emit carbon dioxide (CO2) and cogeneration plants, which are more efficient.

However, the study is not conclusive about a direct and unique effect of the mechanism in increasing the use of gas to produce electricity, because the analysis coincided with a period of extreme drought that reduced the hydroelectric generation capacity, which depends on the accumulation of water. in dams.

Even so, the researchers consider that the introduction of the Iberian mechanism, even without this extraordinary circumstance of drought, or others, can become an incentive “to burn gas” to the detriment of clean energy sources.

As for electricity exports to France, the study concludes that they increased because of “lower prices on the Iberian market” combined with unscheduled stops since April at French nuclear plants and hydroelectric production “at a minimum” because of the drought.

The researchers also underline a “pronounced change in the behavior of French prices” since June 15, so they say they do not rule out that because of the Iberian mechanism there has been “a strategic change in the production of the French electricity system” to take advantage of the new conditions in the Iberian market.

Electricity exports from Spain to France grew by 80% between June and July and, in August, increased by 34% compared to the previous month, according to the study, which emphasizes that “if this trend continues, at the end of the year, exports will have doubled compared to 2021”.

The authors of the study conclude that “there is an insurmountable dilemma between trying to reduce the price of gas in the short term and maintaining the incentives for both gas savings and decarbonisation” and argue that “when the European political objective of energy independence prioritizes the first on the second, it would be important to explain the cost that is assumed and for what purpose”.

“In other words, it seems defensible that without this damage to the incentive to reduce fossil fuel consumption, the impact on citizens of a free-climbing price would be excessive in socio-economic terms”, but “to defend this position, it would be convenient to design credible commitments that exchange emergency measures today for more solid transition and demand reduction measures tomorrow”, defend the academics.

Source: Expresso by

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