The energy crisis and the high volatilities of kilowatt hour prices have left their mark on the Spanish electricity market. Market operators are increasingly seeking security by signing stable contracts away from these daily fluctuations, even if these contracts are short-term, that is, for periods of less than a year.
This is confirmed by the data from the ‘Annual Bulletin of Forward Electricity Markets in Spain’ from the National Markets and Competition Commission (CNMC), published this Monday, according to which the volume of forward contracts increased by 12, 1% in 2023 compared to the previous year.
This change in trend occurs with an average price of the spot megawatt hour (the one set by the market at all times) in decline and which stood at 87.10 euros per MWh, compared to the 167.53 euros MWh registered in 2022, a 48% less. Compared to this record, the average price of forward contracts in 2023 stood at 100.22 euros MWh and 77.07 euros less than in 2022, 43% less. The recovery of liquidity in the electricity forward market in Spain, especially in organized markets and in contracts with shorter maturities, began in May 2023, according to CNMC data.
“Among the factors that contributed to the increase in liquidity in the European electricity forward markets in 2023 are the equivalents (with the opposite sign) to those that caused their fall in 2022: the reduction of uncertainty regarding the general evolution of markets and economic activity, as well as the decrease in the amount of guarantee and margin requirements by the Central Counterparty Chambers (CCPs), as a consequence of the scenario of lower prices and volatility of these.” explains the yearbook. of the CNMC.
In 2021 and 2022, the increasing trend in prices made it difficult for those who generated the energy to have the incentive to sell it in the long term due to the possibility of missing out on a major upward trend in prices. Starting in 2023 and the market’s downward trend, the situation changed. “Many operators have preferred to ensure stability in the contract despite not being able to capture the entire downward trend in prices,” capital markets sources explain.
This security has become even more necessary in 2024, when market prices are falling to negative levels for the first time in history, driven by the greater implementation of renewable energy, both wind and photovoltaic, and the good performance of hydraulics, along which adds a little boost in demand. “At this moment in the spot market there are already operators who are even willing to pay to sell the electricity generated, in a forward contract there are no such negative prices, so this trend is likely to worsen,” these sources explain.
The market regulator has also had its mark on this evolution by lowering the amount of guarantees required from operators who close these installment contracts. This has allowed smaller operators to access the forward market that was previously more difficult for them due to financial reasons.
