Iberdrola Does Not Rule Out Raising The Electricity Bill

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Iberdrola does not rule out that if the upward pressure of inflation continues over time, it will have to transfer the rise in prices to long-term customer contracts. Likewise, the electricity company has pointed out that Spain is not an energy island and has been against the agreement reached between Spain and Portugal to cap the price of gas at 50 euros , which will keep the market intervened for a year.

In a conference with analysts on the occasion of the presentation of results for the first quarter of the year , the chairman of Iberdrola, Ignacio Sánchez Galán, stated that the company has hedges to protect itself from inflation for this year 2022, as well as increases rates, with 80% of its debt at fixed term.

However, he considered that if these levels of inflation are maintained in the future, “it will have to be reflected in the future prices of the PPAs (long-term contracts) that we have to sign . ” “If it continues, our ‘capex’ will increase and it will have to be transferred to future contracts,” the manager added.

A PPA (Power Purchase Agreement) is a long-term clean energy purchase agreement from a specific asset and at a predetermined price between a renewable developer and a consumer -generally, companies that need large amounts of electricity- or between a developer and a marketer who will resell the energy.

“Spain is not an energy island”
Likewise, the president of Iberdrola has assured that Spain “is not an energy island” and has been against the “Iberian exception” that Spain and Portugal have agreed with Brussels to limit an average price of 50 euros per megawatt hour ( MWh) during the next 12 months the natural gas used for electricity generation.

Galán has criticized the decision to “create special or exceptional regimes”, such as the one proposed for the Iberian market, instead of “searching for common solutions”. In this sense, he defended that the situation in Spain “is not different” from that of the rest of Europe, with ‘spot’ (daily wholesale market) and ‘forward’ (future) electricity prices “similar to or lower” than those from other European countries.

Electricity will drop by 20% when the price of gas hits 50 euros
Electricity will drop by 20% when the price of gas hits 50 euros

In addition, the manager, who has denied the existence of so-called ‘windfall profits’, has pointed out that what does make Spain different from the rest of Europe is the “wrong design” of its regulated rate, which is linked to the volatility of spot market prices , while in other countries the scheme is different -as in Portugal with a basket of future prices- or it does not exist at all.

The ‘Iberian exception’ will not impact Iberdrola
In any case, Galán has estimated that the agreement to apply an ‘Iberian exception’ to cap the price of gas for electricity generation, in the absence of knowing the details, will not have “any kind of impact” for Iberdrola. In this regard, he has pointed out that the “extraordinary” margins are in natural gas and oil, “not in electricity”, pointing out that the companies dedicated to ‘oil & gas’ are the ones that are improving their profits.

In this way, he has stated that the solution to the current context of high energy prices, which has been aggravated by the outbreak of the war in Ukraine, must go through accelerating electrification and increasing investments in renewables.

“If we had, we would be much less vulnerable to external shocks,” she stressed. For this reason, he has stressed that the answer lies in “more Europe”, promoting, in addition, long-term contracts and “avoiding structural measures to resolve transitory situations”.

Extend the life of nuclear
Regarding the possibility of extending the useful life of the fleet of nuclear power plants in Spain, the chairman of Iberdrola stated that it is a decision that depends “on the energy policy of each country” and that, in the case of Spain, “it has opted for renewables with a gradual closure of nuclear ones”. However, he stressed that the nuclear ones are ready to work “as long as necessary”, although he stressed that this would require “more investments and more costs that should be recovered.”

Regarding exposure to gas and oil imports from Russia, Galán indicated that for Iberdrola it represents “a minimum level”, for which he does not foresee “any impact” on costs, since, in addition, there are hedges.

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