Spot and short-term contracts:

Prices in European electricity markets continued their decrease during November. The combination of October´s falling gas prices and above-average temperatures together with November´s higher wind power production were the main factors behind this bearish trend. In fact, the third week of November (from the 16^th to the 22^nd approximately) saw the lowest values in electricity spot prices for the last 12 months (86.15 €/MWh). The average daily market price (OMIE) in November was 116.88 €/MWh, 8% lower than in October 2022. The average November electricity bill for an average user was 72.4 €/MWh, which represents a decrease of around 13 €/MWh compared to last October and was c. 23 €/MWh lower than the bill a year ago.

In comparison with the rest of Europe, Spanish power prices were once again significantly lower than those recorded in the continent’s major economies, which in the second half of November averaged over 200 €/MWh. Italy was the neighbouring country with the most expensive electricity, after averaging 225 €/MWh last month, ahead of France’s 192 €/MWh and Germany’s 174 €/MWh.

In gross terms, power demand in November totalled 19.6 TWh, slightly higher than the previous month as temperatures dropped marginally during the last week of the month (in which demand reached the majority of the days 700 GWh).

On the generation side, wind power output was the main protagonist of the month, up by 8% m-o-m, thus becoming the leading source of generation in November with 31% of the mix (6.7 TWh). The next two main sources of generation were CCGTs, which accounted for 22% of the mix (down by 10% m-o-m) and nuclear, with 20%. As for the rest of renewable sources, solar dropped slightly, accounting to 7% of the mix, whereas hydro output increased, with 6% of the mix.

The increase in both hydro and wind power output resulted in a 12% rise in the mix of renewables versus non-renewables. In November, the share changed from 39%-61% to 46%-54%.

Regarding gas prices in Spain (MIBGAS), high levels of European gas stocks and higher than usual temperatures for this time of year contributed to the decrease in the average price of gas futures compared to October. However, in the second half of November, a decrease in the number of vessels waiting to unload at regasification plants plus forecasts of low temperatures led to higher prices. In addition, threats of reductions in Russian pipeline gas supplies also exerted an upward pressure on prices.

Thus, until the 23^rd of November, the average value was 52.4 €/MWh whereas, from then, on, the average reached 92.3 €/MWh. And it continues its upward trend during this first week of December, up to a maximum value of 144 €/MWh registered on the 4^th.

As for emissions, EUA Dec22 contract saw prices trade sideways up till the last part of the month, when they started to increase supported by forecasts of lower temperatures. As a consequence of this trend, on 30 November, the maximum monthly closing price of 84.69 €/Tn was reached on the EEX on November 30^th, the highest price recorded since the end of August. Eventually, EUA Dec22 contract averaged 76.13 €/Tn in November.

Medium- and long-term contracts:

OMIP Cal2023 contract price hovered around the 200 €/MWh mark during November, thus remaining at the same level as in October. Also, the trend of the deviation of the value between the first and the second half of 2023 remained the same as in October (with Q3 and Q4 being than Q1 and Q2). As already mentioned in our October analysis, gas supply does not look very promising in the longer term and so, electricity prices are expected to be higher than this year. Nevertheless, we can observe a slight decrease in power prices for the second half of 2023 (Q3 & Q4). While Q1 and Q2 2023 ended the month at 169 €/MWh and 191 €/MWh, respectively, Q3 and Q4 have seen end of the month values decrease from 245 €/MWh on October 31^st to 230 €/MWh on November 30^th.

However, as for MIBGas futures, there is no such price difference between the first and second half of 2023. Cal2023 closed at 111.5 €/MWh at the end of November, just slightly higher than at the end of October. However, the average of November was 19% lower than in October, decreasing from 125 €/MWh to 101 €/MWh. This doesn’t mean that the market does not consider this year’s gas tensions to be over, far from it.

The cost of gas is expected to rise by 38%. This is the forecast set out by the operators of MIBGAS, the Iberian Gas Market, for 2023. And this evolution is shown in the market while the Spanish government is preparing a new budget that will include some tax increases and the EU adopts levy on excess profits for energy companies.

The Spanish government is planning to introduce a change in the calculation of the PVPC next year. The aim of this change is to achieve stability in the price of electricity and avoid the fluctuations derived from the daily variations experience in the wholesale market. To do this, three future contracts price references will be added to the PVPC tariff: monthly, quarterly and annual, which will be incorporated progressively: 25% in 2023; 40% in 2024 and 55% in 2025, the year after which the daily price will have less weight.

On the other hand, futures for CO2 emission allowances reached an average price in November of 76.26 €/Tn, 8.2% higher than the previous month’s price of 70.49 €/Tn. Compared to the November 2021 average for the December 2021 benchmark contract of 66.44 €/t, the November 2022 average is 15% higher.