Iberia ‘out of time’ to change power price limits

18/11/2020 08:40 Electricity Market


Spain and Portugal are "out of time" to change the current cap and floor in Iberian day-ahead and intra-day wholesale power prices,following changes to European regulation at the start of this year, the European Federation of Energy Traders (Efet) said.

There should be no maximum or minimum limit to prices in European wholesale electricity markets unless the cap and floors are clearly justified by technical reasons, are harmonised for the internal market and take into account the maximum value of lost load (VoLL), according to the new EU electricity regulation approved in June last year and in force from 1 January 2020.


Spanish and Portuguese day-ahead and intra-day hourly prices can range from a minimum of zero to a maximum of €180.30/MWh at Iberian power exchange Omie. This is different from in neighbouring central western European (CWE) markets, where price spikes and negative prices are relatively common.


The EU's Association for the Co-operation of Energy Regulators (Acer) has defined harmonised limits on minimum and maximum clearing prices at minus €500/MWh and €3,000/MWh for day-ahead and minus €9,999/MWh and €9,999/MWh for intra-day markets.


"The European Commission, Acer and Efet share the same position on price limits on day-ahead and intra-day markets — bidding limits in Iberian markets should be removed and Omie should only be allowed to apply the clearing price caps decided by Acer," Efet told Argus.


The new electricity regulation has applied since 1 January and there should not be any specified deadlines from that date, Efet said. This means that Spanish energy regulator CNMC, Portuguese regulator ERSE and Omie "are already out of time", the federation said when asked whether there was any deadline for a decision in Iberia.


Public consultation


Omie ran a public consultation at the end of 2019 based on proposed changes recommended by CNMC and ERSE. Under the proposal, the bidding price floor in Iberia would remain at zero while the cap would increase to €300/MWh. Such limits would be valid for day-ahead and intra-day markets, as well as for the intra-day continuous market shared with other European markets.


The cap would be automatically adjusted by €100/MWh if prices representing more than 60pc of the limit were registered in the market, while the floor price would be adjusted by minus €15/MWh whenever a deal was recorded at the minimum level. This means that, if approved, the new maximum price would be €300/MWh until any deal was registered above €180/MWh in the day-ahead or intra-day markets, after which the cap would increase to €400/MWh. And any transaction at a price of zero would lead to the floor changing to minus €15/MWh.


The results of the consultation were sent to CNMC and ERSE and published by Omie in December 2019. A total of 16 participants sent their views on the proposals, of which 11 were companies and five associations. Six of the respondents asked not to be named, with their opinions kept confidential and only sent to the regulators, according to Omie.


The proposal was not compliant with the new electricity regulation, Efet told Argus.


"Omie has provided no valid justification for the application of an additional price limit, or for the level at which this limit is proposed to be set," the federation said. "The European Commission found that there are no technical issues that would justify introduction of such a price limit. At the moment, the commission is discussing this issue with the Iberian authorities."


Omie said it does not oppose Acer's harmonised clearing price limits, and that it proposed the new cap and floors based on criteria previously validated by the Iberian regulators.


CNMC told Argus it could not comment on the issue as it is still under analysis, with a decision pending from its council.


The results of the public consultation were incorporated into CNMC's and ERSE's final decision process, which is still under way, ERSE said. "As this involves a joint decision by the regulators of the two countries, and which affects the market agents that operate in the spot market, it will only be opportune to comment on the direction or deadline of the decision when these can be announced to the market across the board," ERSE said in response to queries.


Mixed views


While neither Omie nor the regulators explained the reason for the delay in making a decision, the results of the public consultation show mixed views among Iberian utilities and industry associations, in contrast with the similar position shared by Efet, Acer and the European Commission.


Major utilities Spain's Endesa and Portugal's EDP said they do not agree with the price cap and floor proposals and point instead to Acer's limits, while fellow utility Spain's Naturgy noted that keeping the floor of zero could be justified for the time being, until existing support mechanisms for renewable assets are adapted and future schemes set.


"The fact that many producers have subsidies means that not all market participants enjoy the same conditions to compete and that it may be convenient for these producers to generate at negative prices," Naturgy said.


Spanish firm Fortia Energia wrote in favour of keeping current bidding limits in Iberia, as did the local association of independent energy suppliers ACIE — whose members include the power and gas businesses of Total, Spanish firms Repsol and Cepsa, as well as Spanish utilities Axpo Iberia and Nexus Energia.


But Aprie — an association of independent electricity suppliers including the Spanish subsidiaries of French utility Engie and Swiss utility Alpiq — said that restrictive limits affect price signals in Iberia, preventing participants from making correct decisions in situations of insufficient or excess generation. Events of supply shortage under artificially imposed price caps and floors can be passed on to real-time balancing markets in Iberia, where much higher prices could be registered, Aprie warned.


EDP noted that Iberian participants compete with companies from other countries in the intra-day continuous market and should consequently enjoy the same caps and floors, which is currently not the case. And even though clearing prices of zero are rarely achieved in the Iberian day-ahead market, offers at zero surpass 50pc of all traded volumes in many hours of the year, which "shows the existing minimum price is an insufficient limit", EDP said.


Omie justified keeping the price floor at zero because no such price had been recorded in the day-ahead market for the previous five years, and negative prices on the intra-day continuous market only corresponded to small traded volumes.


But there have been several negative deal prices in the intra-day continuous market since early December 2019, which even led to average negative prices in some hours. The last time average prices turned out negative was on 25 October.


Negative prices in Iberia's intra-day continuous market are a result of offer or bids submitted by participants from other countries, as Spanish and Portuguese companies cannot submit values outside the €0-180.30/MWh threshold, energy consultancy Neuro Energia manager Javier Colon told Argus.


Regardless of the forthcoming decision on the new cap and floor prices, Iberian regulators should ensure limits in the day-ahead and intra-day markets operated by Omie are more aligned with the ones in ancillary services markets, which in Spain are managed by local power grid operator REE, Colon said. The caps in such markets generally reach minus €9,999/MWh and €9,999/MWh, but can go as high as minus €99,999/MWh and €99,999/MWh.



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