Low electricity prices are here to stay. The wholesale electricity market (‘pool’ in the jargon) has turned around in recent months with prices at pre-energy crisis levels due to strong renewable generation, falling demand, lower production of electricity with gas and Low costs of combined cycles. A trend that seems to be maintained for the next few years or at least Iberdrola hopes so.
The electricity company predicts low electricity prices in 20% of the hours in two years, with a daily average of 60 euros megawatt hour (MWh). In fact, it highlights that the number of prolonged periods of lower prices – greater than four hours – is increasing. In February we saw how the price of electricity chained more than ten consecutive days below 10 euros/MWh and even so far this year the same hours have already been recorded at zero cost as in all of 2023.
It is true that the figure is still far from the 48 euros/MWh of 2019, the last year before ‘normality’ before the pandemic and Russia’s subsequent invasion of Ukraine. However, by 2026, the hours with low prices will grow by five percentage points and the average price will also drop by 17 euros/MWh compared to 2023. The estimated price of electricity is in line with the estimates for gas and CO2, which will be around 30 euros/MWh and 60/65 euros per ton, respectively, for the same year.
The company highlights that, under this scenario, it will take advantage of pumped storage in facilities such as the La Muela plant. The complex, located in the Cortes de Pallàs reservoir, on the right bank of the Júcar river, is the one with the highest installed power in Europe with more than 1,800 MW in turbine generation and 1,293 MW in pumping. In this sense, in order to capture the value offered by renewables in a scenario of greater price volatility, Iberdrola is focusing on storage with an investment of 1.5 billion euros over the next three years.
The multinational wants to enter fully to ensure additional growth and stable margins, that is, put an end to volatility. Currently, it has about 100 million kWh of capacity and hopes to reach 120 by 2026. The extra 20 million are already under construction, but taking into account the entire project portfolio the goal is 150 million. Iberdrola highlights in its new strategic plan that non-manageable renewables will require other technologies for the continuous adjustment of supply and demand. Pumping, for example, offers the possibility of storing more than 18 consecutive hours. Additionally, it has the capability of modular daily, weekly and seasonal cycles.
Very limited exposure to prices.
Given the fluctuations in prices, Iberdrola urges support for stable and attractive frameworks that promote the adoption of long-term energy purchase and sale contracts, the well-known PPA (Power Purchase Agreement), and other regulated contracts. It already has 100% of its energy sold for this year and 80% for 2025. For its part, for 2026, it still has production available for sale of between 140 and 150 terawatt hours (TWh). Last year the generation income structure was as follows: 15% through CFDs and others; 25% of residential clients and 60% of industrial clients (PPAs and others).
According to data from the European employers’ association Eurelectric, Spain has a pumping potential of 6,000 MW. As has already been said, this new ‘green’ capacity would be achieved with works to adapt the current hydraulic infrastructure, without having to generate a single more reservoir. In this way, the investments will be very different. In some cases, it would only be necessary to change one turbine and, in others, we would be talking, for example, about connections between reservoirs.
The association points out that the amount necessary in each case, the ‘capex’ in the jargon, is different, but places it in a range that goes from 500,000 euros/MW to 1,000,000 euros/MW, depending on the work, according to the sector sources consulted by La Información. Thus, to create 6 GW of pumped water storage in Spain, the total investment would be between 3,000 and 6,000 million euros.
How does the pump work?
To cope with nightfall (when solar generation disappears), combined cycles must be turned on at idle for seven hours, while hydropower has an entry time into the electrical system of three minutes. Reversible pumping hydroelectric plants are facilities that have two water storages at different heights, so that they allow water to be pumped to the upper one at times when renewable production is greater than energy demand, and take advantage of it to generate energy in the hours of consumption greater than said renewable generation, providing clean energy at a competitive and constant price for 100% of the hours of the year. Reversible pumps can thus be considered as a large cell or battery, capable of producing and storing clean energy for when it is needed.
The Government wants to promote reversible hydroelectric pumping in coordination with Portugal, even through a new regulation, according to the words of the third vice president and minister for the Ecological Transition, Teresa Ribera. Both countries are governed by the Albufeira agreement, which regulates the water use of the hydrographic basins they share: Miño, Limia, Duero, Tajo and Guadiana. Currently, Spain has around 3,300 MW of installed pure pumping power, and according to the Executive’s planning, 6,800 MW could be reached by 2030, that is, 3,500 MW more in seven years.
