Hydroelectric – Hydroelectric plants set the price of electricity at 362 hours in the most expensive month in history

The least expensive electricity, that produced by hydroelectric plants, hyper amortized (some have been in operation for more than a hundred years), that generated with a public resource such as water (whose use is subject to administrative concession) is what put the wholesale market price for more hours in the most expensive month in electricity history. According to the operator of the Iberian market (OMIE), water (hydraulic production and pumped hydraulic production) set the price in 362 of the 744 hours of August, which lasted 31 days. And he set stratospheric prices: 225 euros at nine o’clock in the morning today; 236 euros at 10 p.m. on August 24; 250 euros at 10 p.m. on August 23. Today, in the auction corresponding to tomorrow September 1, the most expensive hour was also marked by hydraulics: 250 euros at 10 p.m. In other words, we started September like we ended August, with water prices probably unimaginable just a few months ago.

Water has set the price of electricity, for almost half the hours this month, which has become the most expensive in the history of electricity in Spain, while combined cycle plants (which burn natural gas to generate electricity) set a price at 311 hours. Water wins, a lot of difference. And for many reasons. According to the National Energy Commission (Report electricity generation prices and costs), producing a megawatt hour in a depreciated hydroelectric plant cost three euros (€3) in 2008. It seems logical to think that the hydroelectric plants depreciated in that year are still depreciated for 14 years today. Well, if we take the CNE data for granted and it turns out that a hydroelectric plant today generates at 3 €, and we leave at 10 p.m. tomorrow, when the hydroelectric plant has set a price of €250, what profit margin would we be talking about?

In 2021, the most expensive year in the history of electricity in Spain, water marked the price by almost 60% of the hours. In 2021, the most expensive year in history, Iberdrola, Endesa and Naturgy, owners of more than 95% of the hydraulic power, obtained a joint net profit of more than 7 billion euros, or almost 20 million euros in net profit every day. 2022 will soon snatch the title of the most expensive year at 21. And hydraulics will once again have been the technology that has set the highest prices for more hours, which happens almost every day for more than a year. Brussels put a cap on gas, but it was useless. Because it is not the gas that is responsible for this unprecedented escalation. The responsible is a mechanism of formation of the price of the megawatt hour which we have already talked about many times here, which favors two phenomena: inflation and speculation, because it also turns out that it is the same companies that deal with water taps that deal with gas taps. Inflation and speculation, or vice versa.

And one last thing: according to the Ministry of Ecological Transition and Demographic Challenge, there are currently in Spain precisely 5,431 MW of power in hydraulic pumps (which belong to roughly the same companies) and 2,485 MW are on the way. (are in class). These are projects for which at least the request for prior administrative authorization has been submitted. In any case, and according to ministry sources, the initiatives are multiplying: “many promoters intend to develop projects, but they have not yet started the authorization process for them”. In any case, with the 2,485 megawatts that have already submitted the request for prior administrative authorisation, we would already have reached the 2030 objective that, in terms of pumping, sets the National Integrated Energy-Climate Plan: 8,000 MW. The business is profitable, in sight it is. A pump is a reserve of water with which we can generate just when the price is higher. Big companies know this and that’s why they carry out the most ambitious projects.

The largest of these bears the Iberdrola brand and should play a key role in managing the Iberian electricity market. This is the Tâmega complex, which includes three reservoirs (Gouvães, Daivões and Alto Tâmega) and three hydroelectric power stations with a capacity of 1,158 MW. The mega-complex is under construction right now, on the Tâmega River, a tributary of the Duero, near Porto. After eight years of uninterrupted work, a few months ago the construction of the factories in Gouvães and Daivões was completed. Tâmega will be able to produce each year, estimates Iberdrola, 1,766 gigawatt hours (GWh), equivalent to the demand of 440,000 homes. In addition, they add from the company, this large renewable infrastructure will have sufficient storage capacity to serve “two million Portuguese homes for an entire day”. In 2024, with the entry into service of Alto Tâmega, the construction of the installation will be completed.

The Tâmega gigabatterie – as Iberdrola calls it – will provide 880 megawatts of pumping capacity to the Portuguese electricity system, which will mean an increase of more than 30% compared to the pumping megawatts currently available in the neighboring country. Iberdrola presents it this way: pumping stations are a backup of the electrical system, because they allow energy to be stored by raising water from a lower reservoir to another located higher up. This means that a large amount of electricity can be generated quickly, by dropping water from the upper reservoir and taking advantage of this drop to generate electricity.

The modus operandi is, as is well known, the following: excess energy in times of low consumption (and low price) is used to pump water from a lower reservoir to an upper reservoir. Then, when electricity is demanded by the market (and when electricity generally has a higher price), the operator of the installation opens the valve of the upper tank so that the water, as it comes its fall, passes through the turbines which will produce electricity. In the case of the Tâmega gigabatterie, it so happens that the European Investment Bank (EIB), which is a bank jointly owned by the countries of the European Union, has granted a loan to this Iberdrola project on favorable terms for a value of 650 million euros. Iberdrola boasts of being a leader in energy storage, with a capacity of 4,500 MW installed in pump technology (not yet having this installation).

More companies interested in the company: Repsol studies the Aguayo II reversible hydroelectric power plant in Cantabria (1,000 MW of power; 6.6 gigawatt hours of daily storage capacity). Atalaya Generación is promoting two pumping stations in Álava: Vitoria (1,356 MW; storage capacity of 14.65 gigawatt hours) and Subijana (1,040 MW and 11.25 GWh). Red Eléctrica de España is already developing the reversible hydroelectric power station of Chira Soria in Gran Canaria (200 MW in turbines, 220 in pumping).

The question is: will Iberdrola or Repsol benefit tomorrow from their pump valves in terms of “opportunity cost”? What if we capped the price of hydraulics? What if we reformed the mechanism of price formation within the framework of considering electricity as an essential good of first necessity, as a right, and not as a commodity subject to the maneuvers of speculators, calling themselves Putin or Borja?

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