Wind and rain cause the price of electricity to collapse in Spain: for the first time in history it goes below zero (thanks to renewables)

April 1, 2024 will go down in the annals of the Spanish electricity market for being the first day in which the daily wholesale market recorded a few hours with negative prices. According to data provided by the Iberian Electricity Market Manager (OMIE), this past Monday prices of -0.01€/MWh were recorded for three hours, thanks to the rain and strong winds of recent days

@shaiith/123rf

Wind, water and sun bring their production to record levels and for five months they have concentrated more than half of the country’s electricity: it happens in Spain, where the price of electricity has actually collapsed.

The wholesale electricity market, the so-called poolin fact recorded a negative price for three hours on Monday 1 April for the first time in history: between 1pm and 4pm on 1 April, electricity was cost -0.01 euros. But why this surge in renewables?

Read also: Renewable Energy Communities, in a few days it will be possible to submit applications to access the incentives

There rain and the strong wind of the past few days have been the masters: it was above all the Storm Nelsonin fact, to leave a lot of rain and above all wind, such that renewables worked at full capacity. And not only that: in several autonomous communities this Monday was still a public holiday and the early afternoon time slot was the one in which the lowest consumption was recorded throughout the day.

energy spain

@Operador del Mercado Ibérico de Energía (OMIE)

No benefit on your bill?

In any case, the negative prices on the wholesale market that were recorded on Monday will not translate into negative prices on the bills of consumers. On the one hand, the calculation method of the Small Consumer Voluntary Price (PVPC) or regulated rate was reformed in 2024 to incorporate a basket of medium and long-term prices, i.e. to decouple the final price from the daily market and, consequently, reduce its volatility. Thanks to this reform, what happens in the pool affects the consumer’s final bill by approximately 25% less than before the reform. Added to this are fixed costs for the consumer, the so-called tolls, charges and system adjustments which they prevent electricity from being zero.

The fact is that the month of April begins with falling prices, continuing the trend recorded in March, in which the average price was 20 euros per megawatt hour (MWh), half compared to the average price recorded in February and 77 .5% less than in March 2023, when it was equal to 89.6 euros/MWh.

Furthermore, last month, on March 10, a minimum price of 0.54 euros/MWh was set, thanks to the high participation of renewable energies due to storms who crossed the country.

In fact, on 16 of the 31 days in March the average of pool it was lower than the level of 10 euros/MWh, and in many hours the price was equal to zero euros/MWh, even if this price is not then transferred exactly to the bills.

The issue of VAT at 21%

The VAT issue remains: in February the average daily price on the wholesale market stood at 40 euros/MWh, with a drop of 46% compared to January. This meant that electricity temporarily recovered the value added tax (VAT) at 21% from March.

According to what we read, the last Council of Ministers last year approved the transition of VAT on electricity from 5% to 10% (a rate that will be maintained until the end of 2024): specifically, VAT it would become 21% whenever the wholesale price appears below that level in the calendar month preceding the last billing day. That is, all invoices that include consumption for at least one day in the month of March will have VAT at 21%. Only households with the social bonus are exempt from this increase, as their VAT will remain at 10% throughout 2024.

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