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Spanish gas clawback on power generators 'could cost Eur5 billion'

Highlights

Forward-sold generators facing huge losses

Nuclear, hydro, renewables exposed

EU solidarity needed 'to reassure investors'

The Spanish government's gas clawback mechanism in the power market could cost generators more than Eur5 billion ($5.8 billion) over the six months to end-March 2022, Pedro Gonzalez, director of regulation at Spanish electricity association AELEC, said Oct. 8.

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In September, the government forecast the mechanism would accrue Eur2.6 billion over the period to help reduce the PVPC regulated power tariff, which is directly linked to wholesale prices. Around 11 million Spanish consumers are on the tariff.

"However, looking at the gas prices we expect in the following months we expect the payment will be above Eur5 billion," Gonzalez said in a briefing organized by European sector association Eurelectric.

The charge targets non-carbon emitting generators (nuclear, hydro, non-subsidized renewables) that make up almost 40% of Spain's power production.

Those generators have to pay a fee on wholesale power price revenue when gas prices exceed Eur20/MWh.

"For instance, last Tuesday [Oct. 6] the gas price in Spain was Eur113.77/MWh, meaning non-emitting generators would have paid back Eur130.42/MWh under the gas deduction formula," he said.

As the bulk of nuclear, hydro and renewable generation would have been sold forward at, for example, Eur60/MWh, Gonzalez said generators would be making a loss of Eur70/MWh.

Meanwhile a further charge relating to the CO2 price, currently before the Spanish parliament, would add another Eur12/MWh to generator losses from next January if approved, he said.

Staying the course

Eurelectric Secretary General Kristian Ruby said "panic interventions" by individual EU member states made wholesale price inflation worse, damaged investor confidence and set the energy transition back.

"Leadership should be about staying the course on free trade, transparency and competition, and not letting this situation compromise basic principles," Ruby said.

Across Europe, permitting barriers to new renewables needed to be removed as quickly as possible "so eventually cheap renewables will be the dominant factor in price setting", he said.

Simultaneously, at least 50 GW of storage needed to be added by 2030 to further reduce reliance on fossil fuels, Ruby said.

Longer term there was a debate to be had on improving investment signals for such assets, but now was not the time to be "flip-flopping on market design", Ruby told S&P Global Platts.

On retail tariffs, member states could be using increased tax revenue from rising bills to protect vulnerable consumers.

"Up to 30%, even 40% of electricity bills relate to taxes. Governments could channel that money to those that need it the most," Ruby said, adding that reductions in electricity taxes themselves offered "huge scope" for cushioning the crisis.