Bills, all items that keep costs high on the free market

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.

Added up, it’s 50 euros more per megawatt hour

If all these items are added up, including factors affecting wholesale prices and those affecting trade policies, we arrive at an additional cost of 40-50 euros per megawatt hour which may help explain why the cost of the electricity bill, even with contracts indexed to the variable price, it decreases much more slowly than that of the gas bill as prices fall on the TTF platform. In Italy, then, the effect of the decoupling of the price of electricity from that of gas is also starting to have an impact: the decision, taken in October 2022, to sell directly to energy-intensive companies a portion of the energy generated from renewable sources, which for definition costs less, causes the average Pun to be formed on the basis of higher starting prices because the incidence of electricity produced from gas or coal is greater, whose plants are less efficient and produce at higher costs .

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Bills, all items that keep costs high on the free market

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