“Decoupling” gas from electricity will lower the price of electricity

“Decoupling” gas from electricity will lower the price of electricity
“Decoupling” gas from electricity will lower the price of electricity

Once again, energy is in the focus of the European Union. The high cost of gas, which led to the incredible rise in the price of electricity, alarmed the leaders. On this occasion, the European Commission is gathering the energy ministers of the member states on September 9.

The subject of the discussion is now clear – the “uncoupling” of gas so that it does not have a leading role in the price of electricity. The Iberian market (Spain and Portugal) currently operates on a similar principle – natural gas, in the production of electricity, has a price ceiling, and steam-gas plants are the ones that receive compensation.

As can be seen from the data of the European electricity exchanges in recent months, and according to the claims of the experts, this mechanism for limiting market prices is working. For example, if with a delivery day of September 2 the price of electricity on the “day-ahead market” in Spain and Portugal (on the Pyrenees market) is 152.14 euros per MWh, then in neighboring France it reaches 516.69 euros per MWh.

At the same time, however, in order for such a model to be effective, it must be implemented throughout Europe, the executive secretary of the Association of Electricity Traders in Bulgaria, Krasimir Zivachki, commented to 3eNews and Dir.bg. As he expects, such a mechanism should not be long-term, but only as long as the prices of the blue fuel are high.

“The mechanism that began to be applied in Spain and Portugal since June 14 gives results, and in a very large part of the hours the price (of electric energy, b.b.) in these countries is between two and three times lower than the price in neighboring France. One of the reasons for this is the measures that were implemented under the so-called gas price ceiling, which was announced as 40 euros with the rest of the difference being compensated by the state. That is, the difference between the real price of gas that they have to pay the producers and this 40 euros is taken over by the state,” he explains.

Of course, there’s more. “The other main reason is that, to a large extent, the countries of the Iberian Peninsula operate in a somewhat island type, that is, their power system exchange capacity with neighboring France is quite small, on the order of 2.8 – 3 percent of the developed power in the country. Thus, this prevents French prices from having a significant impact on Spain and Portugal and therefore this measure having such a large effect (on the neighboring French market).

If we go to the European level, yes, it is expected to have a similar effect, but only if such a measure is implemented by all countries”, Zivachki is categorical, drawing attention to the connectivity of the European electricity markets. “Because, you know, the Bulgarian ” day-ahead market” is related to the Greek and Romanian markets. Even if we are not talking about the “day-ahead market”, but about long-term capacities, we still have good inter-system connectivity for long-term products as well. So, if a similar measure is not implemented in these two countries, where a larger part of production compared to Bulgaria comes from gas, but only here, it will not have the same effect as in Spain, because we are extremely well connected with the Romanian and Greek markets,” he explains.

Zivachki adds with an example: if we were not in coupling, in the most expensive hours, let’s say for today (September 1st) in the hours with 1300 – 1400 BGN per MWh, the price in Bulgaria would be no more than 110 – 120 euros per MWh, which has nothing to do with the realized 600-650 euros per MWh.

However, he is of the opinion that such a measure should not be long-term.

“Such a measure, according to my understanding, given the statements of the President of the European Commission, Ursula von der Leyen, the German Minister of Economy, the Austrian Chancellor and others, it seems that it will work, as long as the gas prices have a significant impact on the gas markets. That is , until we stop seeing some extreme levels of gas prices. Because if we go back in time, two years ago the normal prices for this time of the year were between 13 – 16 euros per MWh for gas, and a few days ago exceeded 325 euros per MWh, that is, we are talking about an increase of the order of 24 times”, according to the executive secretary of ATEB.

As he summarizes, “yes, such a measure to “decouple” the price of gas from the price of electricity is possible and will work, but only if it is applied at a common European level, because the markets are connected”.

At the same time, however, we have a market in which Russian gas is replaced by imported LNG, which is up to 70% more expensive. In the “green deal”, gas is expected to be a transitional fuel until it is replaced by RES with a maximum percentage. This implies the preservation of blue fuel prices for a sufficiently long period, which means that this “decoupling” of gas prices from those of electricity will persist for a longer period of two to three years.

However, Krasimir Živachki draws attention to the new trend – skipping gas as a transition fuel and more quickly targeting renewable energy sources (RES), hydrogen, nuclear power plants.

“Gaza was seen as a transition fuel because of twice the lower prices of coal plants. It was seen as a transition fuel one, two, three years ago because the price was favorable. Now more and more the European view is aimed at skipping that intermediate step – gas and going directly to RES or other alternative fuels such as hydrogen. So the expectation is that gas will have less and less prevalence in Europe’s electricity mix as an investment,” he explains. At the same time, according to his words, he should not avoid attention and the fact that the current price of blue fuel depends on the duration of the Ukraine-Russia conflict.

“After the meeting of the energy ministers in the Czech Republic, we will probably have clarity about which model is going towards – the Spanish-Portuguese, or to some extent the Greek version. Subsequently, we will probably also have some time range in which this is expected to be implemented at the European level.

There are two factors that will determine the urgency of the introduction. One concerns the development of prices in the coming months. The other is the internal dialogue between European countries. Because initially Austria, Germany, and the Netherlands opposed the Greek proposal for such a market division, roughly speaking, into gas and electricity, but later they themselves came up with similar proposals,” adds Krasimir Živači.

Continuing the reflections on the future of the electricity market and the green deal, and in response to a question whether the current situation also opens up the possibility of forcing nuclear energy, the executive secretary of ATEB admits this possibility. At the same time, it points out the weaknesses. “The problem with nuclear power is that it takes a long time to build and commission nuclear power, between 9 and 11 years, so we can’t say that they are a quick alternative to gas plants, but we will increasingly see them in the European energy mix in the next 10-15 years,” he concludes.

Now the market is waiting for the decision of the European institutions. Solving the problem of “freakish” gas prices may seem like a “patch” at first glance. However, if it is implemented with the activation of the mechanism for general purchases of gas, which has been in deep stagnation for months, it may have a better positive result. Especially when opening wider the possibility of entry of alternative sources. However, there is a problem that is yet to cause alarm in this general context of the European vision – the intention to limit the consumption of electricity. In addition, difficulties will also come from the fact that it is a question of interfering with market mechanisms.

The article is in bulgaria

Tags: Decoupling gas electricity price electricity

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