Electricity pricing upheaval in Spain

In a move aimed to reshape how electricity is priced, Spain is poised to implement a new system.

As announced by Yolanda Cuellar, the Director of Operations at the Iberian Market (OMIE), during a forum by the Wind Business Association (AEE), Spain will shift from having a new electricity price every hour.

Starting in early 2025, the changes will involve a more dynamic structure with a new price every 15 minutes. This change will increase the daily price points from 24 to a total of 96.

A move towards European harmonisation

The adjustment aims to align the Iberian electrical system, encompassing Spain and Portugal, with the broader European framework.

Electricity generators and marketers engage in daily auctions to agree on buying and selling prices for electricity for the next day.

Currently, these negotiations take place in one-hour intervals. However, electricity consumption and production are not consistent throughout these intervals, experiencing fluctuations with periods of high and low demand.

Despite this, an average price is calculated for the entire hour, leading to discrepancies between the market outcomes and reality.

The new system promises a pricing model that more closely reflects actual consumption patterns, offering potential savings for consumers.

This is particularly beneficial in an era where renewable energy sources, unpredictable by nature, are becoming increasingly predominant.

The mechanics of change

The implementation of this new pricing mechanism will start with a testing phase in March, indicating a significant overhaul in how electricity is traded.

Yolanda Cuellar highlighted the operational challenge, noting that on any random day OMIE manages around 500,000 offers, that is set to increase to around 2 million when the 15-minute negotiation periods are established.’

This move is not just about changing how prices are set, it’s about adapting to the realities of modern energy consumption and production.

Benefits of integration and renewables

This shift also plays into the larger narrative of European integration, where interconnected electricity markets can lead to more stable and lower prices.

The think tank Bruegel points out, ‘A solar panel in Spain can be expected to generate twice as much electricity as one in Finland, while a wind turbine in Poland produces more than one and a half times the electricity of one in Italy,’ illustrating the potential benefits of harnessing renewable resources effectively across borders.

Moreover, integration can enhance competition and reduce the need for backup capacities, making the energy supply more secure and efficient.

Spain’s ambitious step towards more frequent electricity pricing is a testament to the evolving landscape of energy consumption and production.

By aligning closer with European standards and leveraging the unpredictability of renewable sources, Spain is setting a precedent for dynamic pricing in the energy sector.