What does it mean to untie the price of gas from that of electricity - Il Post

What does it mean to untie the price of gas from that of electricity – Il Post

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Among the possible interventions to try to reduce the effects of the increase in the price of gas on individuals and companies, a reform of the energy market at a European level that “decouples” the cost of gas and electricity is highly cited. It is one of the strategies that the European Commission is considering – President Ursula von der Leyen said on Monday, without however providing particular details on the implementation plan – and it currently seems the simplest to apply.

Currently, the price of natural gas affects that of electricity because gas is abundantly used as a source of energy, but in reality it also determines the price of electricity produced from other sources, including renewable ones: the reason depends on how it works the European energy market.

To understand why it is first of all necessary to know that there is an “order of merit” among the energy sources: on the market priority is sold the one produced with lower marginal costs, that is, the one for which an increase in production has less influence on the cost of energy. ‘manufacturing company. Since they are free, electricity produced from renewable sources such as sunlight and wind, when available, is always the first to be chosen. Simplifying a lot: to produce double the energy deriving from gas, a power plant must burn twice as much; the light of the sun, on the other hand, is not paid for.

This is followed by hydroelectric energy, then nuclear energy, and finally that obtained by burning fossil fuels: in order of marginal costs, from lowest to highest, coal, gas and fuel oil.

The final price of energy sold by producers to distributors does not depend on the source used to obtain it, but at all times it is the same for everyone in a given geographical area, which almost always coincides with national borders, and is determined by the last plant electricity taken into consideration – following the order of merit – to satisfy the demand for energy. And in the European energy system, albeit with differences from country to country, it is almost always a gas plant because they are still indispensable to cover demand in its entirety: in Italy more than 40 percent of the energy is produced by these plants. Therefore, the final price of energy, which varies every half hour taking into account the overall supply and the time slot, is that of the energy produced with gas.

This system, said pay-as-clearwas introduced with the establishment of the European energy market, common and liberalized between 1998 and 2000. It was designed to ensure greater transparency on the cost of energy, given that producers must offer it on the market with an offer as much as possible. possible close to the cost of production to increase the probability of selling it, and to avoid speculations that would have raised the price for final customers: in fact, it is expected that in a system in which producers can freely fix their price (pay-as-bid) there could be a general upward trend.

In theory, the system also has the advantage of encouraging the use of renewable sources, which produce less greenhouse gas emissions, since it guarantees to sell all the energy produced (the quantity of which does not depend on a purchase of raw material, but only from the fact that the raw material, free, is present or not) and allows the producers who exploit them to obtain greater profit margins. These higher profit margins, however, make it possible to compensate for the initial investments necessary to build wind or photovoltaic plants, proportionally higher than those required by thermoelectric plants.

But the advantages of the system for energy consumers have disappeared with the progressive increase in the price of gas in the last year, and particularly in the last few weeks. The system in place has led to a significant increase in the cost of energy, largely not justified by production costs. The problem was further accentuated by the concomitant drought, which reduced the production of hydroelectric energy, nuclear energy (plants need a lot of water for cooling systems) and energy obtained from coal (it is usually transported along rivers).

Therefore, for some time now, several European countries, starting with Spain, Portugal, Italy and Greece, where the price of electricity has risen more, have been asking to reform the energy market to “decouple” the price of gas from that of energy in general, and sell that produced from renewable sources at more fair prices. On Monday, Czech Energy Minister Jozef Síkela – we are in the six months of rotating presidency of the Council of the European Union in the Czech Republic – confirmed that in the next few days a draft will be prepared to be discussed on 9 September at the meeting of energy ministers .

Broadly speaking, decoupling (decoupling in English, to quote a term sometimes used also in Italian newspapers) would be obtained by creating separate energy markets on the basis of the source used. If until now the exploitation of renewable sources was encouraged by higher profit margins, in a new decoupled system it could be favored by the possibility, for wind and solar energy producers, to offer lower prices to final consumers: contracts that provide for the supply exclusive of energy produced with renewables, already widespread, would become much cheaper.

In addition to preventing, in the short term, a much higher gas price from affecting the price of all the electricity produced, the reform could therefore also incentivize the production of energy from renewable sources in a new way. However, it is not certain that it will work: everything will depend on how the possible new energy market will be concretely realized.

– Read also: How the price of gas is established

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