The daily price of the Spanish wholesale market (POOL) until November 17 stands at 104.03 €/MWh. This is 51.78% higher than last month (68.54 €/MWh) and 64% higher than a year ago (63.45 €/MWh).

According to analysts from Grupo ASE, this price increase is due to the reduction in wind and nuclear generation coinciding with a rise in gas prices, which makes combined cycle generation more expensive. As a result, in recent days, the electricity price has been above 120 €/MWh.

Cold Weather and Lack of Wind Cause Price Spikes in Europe

Energy prices have risen across Europe. Daily electricity markets peaked on Wednesday, November 6, at 5:00 PM. At that moment, Germany reached 820 €/MWh and the Netherlands 550 €/MWh. These are levels not seen since the energy crisis. As of the 17th, the average electricity price stands at 124.70 €/MWh in Germany and 106.56 €/MWh in France, both higher than Spain (104.03 €/MWh).

Combined Cycle Gas Plants Increase Their Production by 43.5% and Dominate Price Setting

Wind generation in the first half of November was 60% lower than its average over the past five years. This was further impacted by the planned shutdown of two nuclear plants (Ascó I and Ascó II). Additionally, photovoltaic contributions decrease during this time of year. In exchange, combined cycle gas generation (CCG) increased by 43.5%.

So far this month, CCG generation has averaged 123 GWh per day, its highest level since September of last year (141 GWh/day). They occupy third place in the generation mix in November, contributing 18.5%, just behind nuclear (18.8%) and wind, which, despite the drop, remains first with 19.7%.

Combined Cycles Play a Key Role in Meeting Demand

Combined cycle plants (CCGs) play a crucial role in meeting demand. Their high availability and flexibility make them indispensable, especially when renewables are not available in the system. This capacity allows CCGs to set prices and expand their profit margins during times like this, when nuclear, wind, and solar contributions decrease.

According to analysts from Grupo ASE, in Spain, with the near disappearance of coal, CCGs have become the only technology capable of guaranteeing that the "lights stay on" in our electrical system. This means they are setting the marginal price of the market for nearly all hours of November. In fact, prices have increased in every hour of the day, averaging nearly 40 €/MWh (+64%).

Gas Price Increase Affects the Electricity Market

On some days, prices during peak hours have reached 140 €/MWh, which, according to Grupo ASE analysts, had not been seen since the toughest months of the energy crisis (2021–2023). The cause is the rise in gas prices (TTF and MIBGAS) and CO2 emissions (EUA), which has pushed CCG generation costs to their highest levels of the year, and these costs are being transferred to the electricity market.

The generation costs of a medium combined cycle plant (with 50% efficiency) grew to 118.14 €/MWh by mid-November, due to current gas and emissions prices. This represents an 81.5% increase from 65 €/MWh in late February.

So far in 2024, combined cycle plants have averaged a production cost of 90.42 €/MWh. This means they have only been profitable when the electricity price exceeded this value, which occurred during 27% of the hours. In contrast, so far in November, this has occurred in 82.1% of hours.

Currently, Spain has an oversized CCG fleet (26,250 MW), with 75% of it managed by the three major utilities (nearly 20,000 MW). These plants required a 15 billion euro investment for the sector, which consumers have largely paid for. Now, their low utilization rate (11.5% of capacity), the risk of low electricity market prices (due to the increase in renewables), the withdrawal of capacity payments, and decarbonization policies have devalued their worth.

In recent years, companies like Repsol, Engie, or Total have invested in (purchased) CCG plants, knowing their strategic value to coexist as the only technologies capable of ensuring a renewable transition. Grupo ASE analysts are confident that investor competition will prevent the implied returns of these plants from increasing excessively, taking advantage of moments like the current one, with long periods of low renewable production.

Weather Drives Gas Prices Up

Spot gas prices in the reference market in Europe, the Dutch TTF, averaged 41.42 €/MWh during the first half of November. This represents a 3.2% increase from the previous month and is the highest price so far in 2024. The Spanish spot price (MIBGAS) was 41.65 €/MWh, up by 2.7%.

Grupo ASE analysts point to the cold start of November and the announcement by Russian company Gazprom to cut supply through Austria, which means no more Russian gas will be received (although it only affects a volume of 10 mcm/day) as the main drivers.

As of November 1, EU gas reserves were at 95%, surpassing their storage target (90%). However, in the first half of November, Europe experienced its first test of the winter heating season, with a prolonged period of low temperatures and wind below average.

This weather led to higher gas demand and a rapid withdrawal of reserves at 200 mcm/day, compared to 30 mcm/day in October. In just fifteen days, reserves fell by more than 5 percentage points, down to 90%. The market interpreted this as an alarm signal, and spot and futures gas prices were driven up.

Grupo ASE analysts explain that with the current storage level (90%), Europe is not expected to face supply problems this winter. However, what now concerns buyers is that the high season may end with low reserves, and that the summer refilling campaign may be tough due to competition from Asia.

In previous seasons, after an unusually cold start to November, temperatures above average have arrived for the rest of the winter season. If this happens, it would reduce the risk of a decline in European gas storage. Therefore, weather conditions will be key in the coming weeks.

Forecast for the End of the Month: Expected Wind Generation Increase Should Moderate Prices

Starting from November 20, weather forecasts indicate an increase in wind generation to over 300 GWh/day in the peninsula. Additionally, the Ascó II nuclear plant is expected to reconnect to the system. The combination of these factors should bring prices back to a range of 70-90 €/MWh.