Recent developments in spanish retail electricity prices: the role played by the cost of CO2 emission allowances and higher gas prices

Matías Pacce, Isabel Sánchez () and Marta Suárez-Varela
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Isabel Sánchez: Banco de España

No 2120, Occasional Papers from Banco de España

Abstract: Between December 2020 and June 2021, wholesale electricity market prices almost doubled in Spain. According to our estimates, a substantial portion of the observed increase – around 20% – would be due to the rise in CO2 prices in the European ETS, which directly impacts the cost of generating electricity through fossil fuel technologies. Nevertheless, most of the increase – approximately half – would be attributable to the rise in natural gas prices, one of the inputs in combined cycle plants. Developments in wholesale electricity prices in other European markets have been similar to those in Spain. However, there are substantial differences regarding the pass-through to retail prices. In particular, the increase in the wholesale price of electricity would account for around one-third of the rise in the Harmonised Index of Consumer Prices (HICP) in Spain between December 2020 and June 2021, while its contribution to overall inflation in the main economies of the euro area has been significantly lower. Disparities in retail pricing schemes could be behind the observed differences.

Keywords: inflation; electricity market; European Emissions Trading System (EU ETS); pass-through (search for similar items in EconPapers)
JEL-codes: E31 Q41 Q43 Q52 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2021-08
New Economics Papers: this item is included in nep-ene and nep-env
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://www.bde.es/f/webbde/SES/Secciones/Publicac ... 21/Files/do2120e.pdf First version, August 2021 (application/pdf)
https://www.bde.es/f/webbde/SES/Secciones/Publicac ... s/21/Fich/do2120.pdf Spanish version (application/pdf)

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