The high price of gas pushes electricity traders to break fixed-price contracts

The electricity commercialization sector is in a critical situation. The big ones, Iberdrola, Endesa, Naturgy and EDP by the pressure of the Government with the new measures to lower the light; and the small ones because the wholesale market drowns them to the limit. Some see the bankruptcies that are taking place in the United Kingdom as a prelude to what may happen in Spain in the coming months.

The problem is in the price of gas, which continues to set historic records and push the wholesale market to historic levels. The benchmark, the Dutch TTF, climbed in just one day more than 6% and at the close of the market, it stood at 77.80 euros / MWh, never seen. And closely linked to it, the CO2 market, which also climbed to the record of 64.69 euros / Tn.

And this is just the beginning. This Tuesday, the light marks its second highest record in history, up to 182.71 euros / MWh, but experts predict prices that will be around 200 euros / MWh.

Pressure to the big electric companies

Solutions had to be found, and the Government approved a battery of measures to lower the light where large electricity companies were forced to return what has been called ‘supervening remuneration’, about 2,600 million euros. However, the Government’s calculations do not come out.

According Aelec (Iberdrola, Endesa, EDP and Viesgo), “If this reduction were applied, the paradox would arise that it would be even higher than the price they are receiving from their clients, reaching the absurdity of having negative net income.”

The first to take action has been Iberdrola, which has already sent letters to its large clients announcing that it will modify the conditions of fixed-term contracts to offset the costs of the new regulations. It has also done the same with bilateral power purchase agreements (PPAs).

“The will is the maintenance of the contract in conditions in which the economic balance is restored, for this reason we call on them to negotiate economic conditions that would be applied temporarily,” says the letter. However, according to sources from the electricity company, no change has yet been initiated because, for the moment, the letter is informative.

The other two large Spanish marketers, Endesa and NaturgyThey have not yet done so but do not rule out doing so, as EL ESPAÑOL-Invertia has learned. Sources from Enel’s affiliate point out that “a Despite the exceptional situation of extremely high prices in the wholesale electricity markets, Endesa has maintained the validity of the conditions of its fixed price contracts “.

“However, Royal Decree Law 17/2021 pushes Endesa into a new situation, not caused by competitive market tensions, if not by the regulator, since it de facto nullifies the validity of the hedging carried out.”

PPAs and second markets

Most of the energy generated by the plants without polluting emissions the large electricity companies already had a fixed price closed with customers either through a PPA or a long-term contract. Therefore, high market prices do not enter spot, according to sources in the electricity sector.

“Let’s imagine a contract from a client that signed in December 2020 for its supply in 2022, with an energy price reference of € 50 / MWh. If responsible management is done, part of its generation would have to be reserved. It is easy to understand that during the year 2022 this power plant, for this energy, will enter € 50 / MWh, and not the price of the spot markets (€ 140 / MWh currently) “, add other sources.

The new regulation obliges the plant to reduce its income as if it were selling its energy in the market spot, with which this operation would yield a negative income.

What’s more, “they will also have to compulsory auction part of the generation, which is also committed to other clients at a fixed price causing the same effect. “

Small traders

Another situation is that experienced by independent marketers, who do not have their own generation.

“The situation is quite critical. Many trading companies have had to break contracts with clients who had promised them a certain rate,” sources from the electricity marketing sector explain to this newspaper.

“We are bearing 21% VAT while we charge our clients 10%”, they assure.

The fear is in not being able to face the payments or the guarantees that it requires OMIE, the market operator, or REE, the system operator. “We are waiting to see who is the first to announce the bankruptcy of their company.”

They have to face prices that are already around the 180 euros / MWh with rates signed a year ago with its clients at 60-70 euros / MWh, and which could continue to rise until next March.

“We have modified contracts with domestic”, confirm sources of Yesterday Nova, the first marketer in Spain to offer 100% renewable electricity. “It seems fair that contracts should be reviewed when energy costs 300% more than before.”

“The advantage that large marketers have is that what they lose in sales they earn in generation,” he explains. Sandra salinas, responsible for the Operation Department of the marketer Luvon Energy.

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