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Spain Energy Suppliers Told To Auction Excess Supplies

Source: Bloomberg - Sat 2th Nov 2013
Spain Energy Suppliers Told To Auction Excess Supplies

Spain passed a law to force some of its biggest electricity consumers to auction power capacity they don't need rather than earn fixed prices in a move to limit profit to those industrial users when demand is great.

The rules apply to consumers such as factories and foundries that contract power from utilities at discounted prices in exchange for agreeing to forgo usage in hours when demand spikes in the system. The goal is to "guarantee" lower electricity costs, according to the legislation published today.

"This creates market signals to guide when the system needs to make adjustments," Vicente Lopez-Ibor, chairman of Estudio Juridico Internacional, a law firm in Madrid specializing in energy, said today in an interview. He said it's likely that sellers will earn lower prices.

The government of PM Mariano Rajoy, struggling to revive growth in the euro-area's 4th-biggest economy, is revamping hundreds of electricity-system rules to cut production costs.

The government says that's needed to curb price increases to residents and businesses.

A sweeping package of regulations is planned by year-end including eliminating traditional subsidies for wind and solar farms and for industries like paper-pulp manufacturing or smelters that may make heat and electricity simultaneously.

Clean energy plants also have priority selling in wholesale markets over traditional power sources such as coal, natural gas and nuclear, whose production declined an annual 12% in the first 9 months of 2013.

Spain's power market over the last decade has failed to keep costs near inflation. At the same time governments have capped price increases to homes and small businesses.

26 Billion Debt

That forced utilities to put up the money used to subsidize power to consumers, building up a power-system debt of about 26 Bln currently, a liability for the government.

The new law applies to customers that buy high-voltage electricity in wholesale markets.

Spain's new regulator, the Comision Nacional de los Mercados & la Competencia, will supervise the auctions. The law gave scant information on how that will work, Lopez-Ibor said.

"It needs a more explicit role, and more guidelines," he said.

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