Madrid The Spanish government does not have a reputation for attracting attention with reform initiatives in the EU. In the debate about the high price of electricity, however, things are different. Spain’s energy costs are among the highest in Europe, which is why some companies have already suspended their production.
The Spanish Prime Minister Pedro Sánchez recently spoke out in favor of European intervention in Brussels – without success. However, it is not clear whether Brussels will not react in the end. Because what Spain is currently experiencing threatens with a time lag in other countries, warn experts.
Spanish households feel high electricity prices more quickly than others: 40 percent of them have a regulated electricity tariff that depends on the spot market, i.e. varies daily. So for months now, rising energy prices have been a national excitement that has filled the front pages of newspapers.
According to the consumer protection organization OCU, the electricity bill of a Spanish household was 101 euros in October – 33 percent more than last year. In Germany, like most other countries, electricity customers agree a fixed price for a contractually agreed period.
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“But there, too, consumers will feel the price development when their contracts are extended – they only notice it with a time lag,” says Natalia Fabra, energy expert at the Carlos III University in Madrid. “Spain is only anticipating what will be seen there in the coming months.”
Energy costs are driving inflation to 5.5 percent
In Spain, rising electricity prices have already resulted in inflation in October at 5.5 percent, significantly higher than in the other large EU countries. By contrast, core inflation – i.e. the price increase excluding energy and food – was just 1.4 percent.
Some companies have partially shut down their production because of the high energy costs, such as the steel manufacturer Sidenor or the fertilizer manufacturer Fertiberia. Households are spending their pandemic savings less quickly than experts expected.
According to the rating agency Standard & Poor’s, electricity costs make up a good eight percent of their disposable income, which is more than in Germany, where it is 6.4 percent. Analysts lowered their growth expectations for Spain in the past few weeks.
The Foundation of Spanish Savings Banks, Funcas, now expects economic growth of 5.1 percent for this year instead of 6.3 percent. She names the high electricity costs as one of the reasons for the revision.
Javier Revuelta, energy expert at the consultancy Afry, expects inflation to rise even further if the Spanish government does not cut the price of electricity. “Many companies have not yet passed the higher energy costs on to their end customers,” he says. “If prices stay that high, they will. The government must therefore act if it wants to limit inflation. “
Madrid flashes in Brussels with a proposal for electricity price reform
Madrid has already cut taxes on electricity and energy generation several times since the summer. But the effects of this were immediately eaten up by the rising market price. In Brussels, Spain campaigned for the energy price to be recalculated.
So far, the principle has applied in Europe that the most expensive form of energy determines the market price. Currently the gas is. The producers of other forms of energy such as producers of nuclear or solar power with low running costs are currently benefiting from high profits.
At a meeting of European energy ministers at the end of October, Spain demanded that instead of the most expensive price, consumers should pay an average of what it costs to produce with different energy sources. Spain did not owe details of the plan. But even with the idea, Madrid was flashed off by many countries. Germany and eight other nations warned against short-term interventions in the market. World market prices for gas, oil and coal could not be influenced, they argued. If the EU lowered the gas price artificially, the operators would make losses when they start their systems, warned the Luxembourg energy minister Claude Turmes.
“I don’t understand why the other EU countries are so inactive on the subject,” says energy expert Fabra. The current pricing scheme should be reformed. “It’s as if buses, trains and trams were all calculating the price of an airplane,” says the professor of energy economics. At the last auction for renewable energy in Spain, the price was around 30 euros per megawatt hour. “That shows the price at which it is worth investing for companies,” she says. “But companies are currently receiving prices of over 200 euros per megawatt hour.”
Spanish government examines new price for renewables
After the cold shoulder from Brussels, Madrid is now considering which national measures can be taken to lower the price of electricity. “The government is currently looking for ways to curb the rise in electricity bills,” explains Afry consultant Revuelta. “One of the options is to pass on to consumers some of the high profits that certain producers make. This also applies to certain renewable energies that temporarily generate higher revenues than expected. “
Currently, 42 percent of electricity in Spain comes from renewable energies. According to media reports, the government could as early as Tuesday, November 23rd. Resolve by decree to fix a price of around 60 euros per megawatt hour for the majority of renewables in the regulated tariff.
In the regulated tariff for consumers, prices have so far been dependent on the spot market. But the traders in the unregulated market immediately protested. They fear that this will switch all customers from the free market with long-term contracts to the regulated one.
In the current high price phase, the Spanish government tried to cut the profits of private energy suppliers – and had to backtrack after violent protests by suppliers. In October it decided by decree to tap the “unexpected profits” from nuclear and hydroelectric power plants and use the money to finance a reduction in electricity tax. The energy giants, however, defended themselves and argued that they sell the majority of their energy through long-term contracts at fixed prices that are well below current prices. At the end of October the Spanish government rowed back again.
Algeria cancels gas pipeline to Spain
But there are also some Spain-specific explanations for the dangerously high electricity price. This includes the poor connection of the southern European country to electricity and gas lines from Central Europe. As a result, the price in Spain is often higher than in other EU countries.
There is currently another problem: Algeria cut one of two pipelines for its gas supplies to Spain at the end of October. It ran through neighboring Morocco, whose relationship with Algiers is currently marked by violent political tensions. Algeria covered around half of Spain’s gas requirements in 2021 – in roughly equal proportions via the two pipelines. The second pipeline runs directly from Algeria across the Mediterranean to Spain and is expected to carry more gas in the future. Nevertheless, there remains a gap that Madrid has to fill by purchasing liquefied petroleum gas, which is currently particularly expensive.
However, experts do not expect a blackout in Spain as the Austrian government has more or less announced – partly because the gas storage facilities are well filled.
More: Gas price shock for the global economy – “Energy crisis is becoming a question of survival for many companies”