Spagna : August 10, 2010

This past April the Spanish electricity market did something it had not accomplished in over a year – reported an upward trend in pricing!

Starting in 2009, the prices on the electricity market reported steady declines.  However, during the second quarter of 2010 prices actually started to rise with the future price for March 2011 rising from €39 per MWh to €45 per MWh.  This phenomenon of rising electricity prices coupled with uncertainty in the country’s financial/political scenes has generated a number of notable consequences for the energy sector. The first noticeable change has been the lack of interest by suppliers to compete in the short term.  They seem to be taking a “wait and see” attitude preferring caution in pricing energy for the long term.

Another change is the narrowing of pricing in supplier bids.  In 2009, the difference between the best and worst supplier bids was generally 15 to 25 percent.  Currently, the difference in pricing has narrowed significantly being only 5 to 10 percent.

Finally, the biggest change has been the suppliers who are now winning the bids.  The suppliers who years ago did not have the most competitive pricing are now coming up with the strongest pricing and thus capturing more market share from the traditional major players.

While our advice to clients has been, and continues to be, to negotiate medium to long term contracts, the strategy has changed somewhat given supplier reluctance to enter into these types of arrangements.  Clearly, suppliers are viewing the current market as having more risk which they are not willing to assume. Will this trend continue?  It is hard to say; however, if you follow the action of the suppliers, they are seeing more upside risk in energy pricing than downside opportunity.