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Spanish power futures fall in wake of generation-tax freeze


22 Jun 2021 12:22


22 Jun 2021 12:22

(Montel) Spanish power futures dropped on Tuesday after the government announced the suspension of a 7% tax on power generation during the third quarter.

The front-quarter contract was last down EUR 1.55 at EUR 85.30/MWh after trading as low as EUR 84/MWh on the OTC. July’s contract fell EUR 1.75 at EUR 85.50/MWh.

Several experts attributed the drop to the government's tax announcement late on Monday in a bid to lower power prices.

One trader pointed out prices did not drop as much as in 2018, when a similar suspension took place.

Power forwards had already priced in part of the bearish impact after initial reports of the government’s plans to suspend the tax last week, said Javier Revuelta, senior consultant at energy consultancy Afry.

The Q3 contract would probably be closer to EUR 90/MWh without this previous decrease, he added. There could also be a “small adjustment” when the tax suspension is officially passed on Thursday.

Room for further drop
"It's early to say, but it's possible that it will go down a little more," agreed Rafael Alcala of Spanish consultancy Trebol Energia.

He pointed out the tax was on generation and did not affect energy commodities setting variable costs for power plants.

"We do not see a big drop, it looks like it will be a very expensive summer," he added.

Both agreed that rising gas and carbon prices, key cost drivers for gas-fired plants, could offset the bearish impact of the tax suspension.

Higher carbon revenue
The Dutch TTF front-month gas contract hit the highest point in almost 13 years at EUR 30.30/MWh on Tuesday. The benchmark Dec 21 EUA contract was last seen up EUR 1.06 at EUR 53.42/t.

Spain could see reduced power imports from France over the summer during the tax freeze, as Spain's price would reduce its premium over France's equivalent, Revuelta said.

Lower revenue from the tax over one or two quarters could be offset by higher income from EUA auctions, where prices continued to increase, he added.

Spain was unlikely to see a tariff deficit in 2021, Revuelta said, in reference to a discrepancy between power costs and revenues in Spain seen over the past decade. The country imposed the tax in 2012 to pay a tariff deficit of almost EUR 30bn which accumulated over years, with more than EUR 14bn still owed.

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