In recent days, May appeared poised to surpass April 2024 as the cheapest month in the history of the Spanish electricity system. While it may not achieve this title, it remains one of the most economical months in the series. The significant decline in wholesale electricity prices, driven by the robust performance of renewable energy sources such as hydroelectric, wind, and photovoltaic power in spring, has helped alleviate the impact on regulated electricity bills following the rapid activation of gas-fired power plants post-blackout—a measure undertaken by Red Eléctrica de España (REE) to minimize the risk of further outages.

Independent analyst Francisco Valverde highlights that although the wholesale price reduction doesn't fully offset the increase in the Price Volatility Protection Component (PVPC) due to adjustment services and forward markets, it provides considerable relief. This reflects both the enhanced security margin with which the Spanish electrical system currently operates and the revised calculation method adopted by the government in response to the energy crisis, aimed at reducing the volatility affecting millions of households. However, this increased certainty paradoxically works against the system during inherently cheaper months like those in spring.

Rafael Salas, Professor of Applied Economics at the Complutense University of Madrid, acknowledges that while these low wholesale prices have not completely prevented an increase in regulated bills, they have significantly mitigated it. "Prudence is becoming costlier, and ultimately, the adjustment services and forward markets have outweighed the wholesale price drop," he explains.

According to Valverde's calculations, the average regulated market bill in May rose by approximately 70 cents, reaching around 53 euros. This is about 15 euros less than the median bill for the past ten Mays. Without the wholesale price plummeting from 27 to just under 17 euros per megawatt-hour (MWh), the increase would have been significantly higher, exceeding four euros.

In May, wholesale market prices fell below 20 euros per MWh for nearly two-thirds of the hours. In one-third of those hours, as noted by Antonio Aceituno, founder and CEO of consulting firm Tempos Energía, prices were directly negative, compelling electricity producers to pay to dispose of excess energy.

"The daily market is at rock bottom, nearly record-breaking, which has prevented a substantial rise in the regulated tariff in May," confirms José Luis Sancha from ICAI. He observes that the influence of adjustment services has moderated over time, possibly due to REE's more precise management.

Despite the significant increase in adjustment services being attributed to REE's cautious approach to prevent recurrence, this trend had already started before the blackout. In April, these costs had reached historically high levels, according to Valverde. "May has been a record squared," he adds.

The free market remains a "black box," laments Salas, as the National Institute of Statistics (INE) refuses to detail its price evolution, despite including it in inflation calculations for several quarters. As reported, energy companies are beginning to incorporate clauses that transfer additional costs from REE's safety measures to customers.

Should REE maintain its current operational "airbags," summer will follow a different trajectory. First, the soothing effect of spring renewables will give way to a persistent high-pressure system, benefiting only photovoltaic energy to some extent. Second, the widespread use of air conditioning will boost demand, necessitating the activation of more gas-fired plants during peak heat periods.

"The market is set to rise in summer, that's certain," predicts Valverde. "The big question now is whether REE will release combined cycles from technical restrictions, as several are already entering the market. The uncertainty lies in whether the cycles entering the market will suffice, a question only Red Eléctrica can answer."

Recent trends indicate a clear pattern: in July and August, traditionally the hottest months, wholesale prices have increased. "This year, prices will likely climb even further, despite increased solar capacity, due to higher anticipated heat and REE's continued emphasis on operational security," projects Sancha. "Until the blackout issue is resolved, expect the operator to maintain extreme caution."