Electricity market in Spain: win-win rules for power companies

Electrical market

Other system levies are also to blame. Consumers have footed a huge bill in phasing out nuclear energy and are unduly charged for capital allowances covering long away depreciated assets. Electricity companies pocketed these windfall benefits issuing titles comfortably covered by State guarantees. They also managed to cut the grass under new entrants’ feet, by artificially lowering wholesale prices.

Recent steps taken by government to redress gross market failures have reinforced the incumbent power companies’ overwhelming grasp. Cutting down renewable subsidies has severely hit independent operators, while inflicting light losses to big electricity concerns. No wonder as most energy they generate comes from conventional fuels. Throwing to the dustbin the existing price setting for consumers is bound to swell their current mastery. Up to now, future fees derived from a quarterly auction where financial institutions and outsiders entered bids taking a gamble on the foreseeable wholesale price level in the coming months. The latest option proved to be a complete flaw, as electricity quotations skyrocketed in the previous weeks. The government has decided to dismantle such a scheme, charging consumers for the average prices in the corresponding quarter.

It may look as common sense policy, aimed at doing away with speculation. Yet, suppressing intermediaries doesn’t willy-nilly lead to enhanced consumers’ welfare. Especially, if it allows the main players overstretching their market dominance. Financial entities will flee away and retail companies will prove unable to match the coalesced electricity firms firmly controlling wholesale prices at their will. They have the means to ruin any outsider challenging their closed shop business and will not hesitate using them. The worse possible outcome for consumers at the long run.

About the Author

JP Marin Arrese
Juan Pedro Marín Arrese is a Madrid-based economic analyst and observer. He regularly publishes articles in the Spanish leading financial newspaper 'Expansión'.

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