The price of gas on the now well-known Dutch platform TTF has found peace for a few weeks: it has dropped from the peaks of 300 euros per megawatt hour last summer and now fluctuates without shocks around 70 euros per megawatt hour. And if in recent months those price leaps had been immediately responsible for the increase in electricity bills, today the reverse path does not have the same attitude and electricity, even for those who choose the indexed price (both on the free market and in the standard offer ), continues to be expensive. Gas bills, on the other hand, are returning to the levels of early 2022.
The reason is not linked to the fact that there are obscure speculators on the move but to a series of interconnected phenomena triggered by the crisis following the war in Ukraine and the dependence of electricity production on gas. Various items also affect the energy component of the electricity bill, therefore the cost of the raw material different from the other system charges which in Italy are downloaded on the electricity and gas bills.
The weight of the price of C02
Two components significantly affect wholesale prices. One of the most significant is the cost of C02, i.e. those certificates that companies that produce energy from fossil fuels (coal, gas) must buy to offset the polluting effect and be in line with sustainability parameters. Well, from 1 January 2021 the cost of these permits (European union allowances, EUA) has risen from 33 euros per ton to reach 80 euros per ton. It is calculated that the effect on the price of electricity (the Pun in Italy) is equal to an increase of 3 euros per megawatt hour compared to a Pun which in December had an average value of 294 euros per megawatt hour (0.294 euros per kilowatt hour ). The increase in the price of EUAs was not only the acceleration of the European Commission on the sustainability targets with the Green Deal and the RepowerEU, but also the energy crisis following the war in Ukraine and the reduction of renewable energy generation due to the Drought.
The spread between the cost of gas generation and the price of electricity
The Clean spark spread also contributes to the formation of wholesale prices, which essentially expresses the difference between the cost of gas to generate electricity through a thermoelectric plant and the price of electricity itself (the Pun in fact). This spread has gradually widened over the last 8 months, going from 12-20 euros per megawatt hour to peaks of 64 euros during last summer’s gas price surge, reaching 19 euros in December. The narrowing of this spread is due to the reduction in energy consumption due to the mild climate and to an increase in renewable generation, in particular wind power. However, the differential remains wider than at the beginning of 2022.
The effect of peak demand and the risk of insolvency
The price of the energy component is also formed by the policies of companies to hedge against risks and to remunerate market operators on the basis of sector regulations. And here at least three components come into play. There is what is known in jargon as the “profile effect” and which covers the company with respect to the gap between energy sold at a given price and the customer’s actual consumption in the face of sudden price peaks. Last summer’s surge in prices unloaded significant losses on utilities due to the fact that they found themselves selling energy at much lower prices (envisaged by fixed-price contracts) than the necessary spot market purchases (at lunar prices) to cope with the peaks in consumption driven by the heat wave. The concern that a similar scenario could arise again translates into a risk that is now covered with an average increase of 15 euros per megawatt hour. Then there are the charges for the imbalance (to be recognized for different customer consumption compared to the daily program communicated to the network operators by each commercial operator) which have increased by 5 euros per megawatt hour. And finally a sort of insolvency risk (unpaid ratio) increased due to the effect of price fluctuations, beyond the fact that there has been an increase in insolvencies, and which has led to an increase estimated at 5-10 euros per megawatt hour.