Endesa and Iberdrola to renegotiate electricity contracts with customers

ENDESA and Iberdrola have announced they will renegotiate electricity contracts with large customers and industrial consumers

Endesa and Iberdrola, Spain’s two main electricity suppliers have both announced that they are prepared to urge large customers to renegotiate long-term electricity supply contracts. Endesa making their announcement today, Wednesday, September 29, following a similar move yesterday, Tuesday, September 28, by Iberdrola.

This comes in the aftermath of the huge rises in the price of electricity in Spain, which has led to the Government stepping in to try and cushion the effect on consumers, with not only electricity, but gas prices also rising considerably.

Electricity companies have been warned by the Government that they will be monitored, and a royal decree-law has been issued, which states, among other measures, that nuclear, hydroelectric, and renewable without premiums have to return the “extra” benefits that they generate until March 2022. The large electricity companies have also been instructed to auction part of their generation among traders and industries.

Criticism of the measures has followed from the entire sector, who consider it an attack on the viability of the bilateral supply contracts closed months ago at fixed prices, that were much lower at the time than they are now.

A source from Endesa explained to Efe that despite the exceptional situation of higher prices in the wholesale markets, they have always maintained the validity of the conditions of their fixed-price contracts, “professionally managing the risks of these markets, regardless of their evolution”.

According to the Endesa source, the Royal Decree-Law 17/2021, “pushes Endesa into a new situation not caused by competitive market tensions, but by the regulator, since it de facto nullifies the validity of the hedging carried out”.

As an example, the source explained that if a client signed a contract in December 2020 for its 2022 supply, with an energy price reference of €50MWh, for this energy, the company will not charge today’s price, currently at around €140MWh.

Under the new regulations, this reality is not taken into account says Endesa, and obliges the plant to reduce its income as if it were selling its energy in the market, with which the operation would yield a negative income before any expenses or amortization of €40MWh – including a reduction by decree of €90MWh.

“The royal decree-law not only leaves us with this reduction in income, but we will also have to compulsorily auction part of the generation, which, as in the previous case, is also committed to other clients at a fixed price, causing the same effect that we have”, concluded the Endesa source, as reported by 20minutos.es.

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