The Spanish utilities IBERDROLA and Endesa yesterday held Spain’s second auction of primary electricity, in which they allocated a total volume of 2,503,826 megawatt hours (MWh). This initiative reflects the commitment of the two firms to develop a competitive Spanish power market and to promote the use of forward contracts.
A total of 17 traders took part in the auction, 13 of them (76%) foreign, which attested to the market’s confidence in the guarantees offered by IBERDROLA and Endesa. This second auction was larger both in the number of participants and the volume of power allocated with respect to the first, held on 13 June, when 15 traders took up a total of 1.45 million MWh.
Two different products were offered in today’s auction. The first was 3-month blocks of 1,104 MW of base-load electricity (which can be used at any time of day and any day of the week), and was sold at a strike price of 22 euros/MWh. The second was 3-month blocks of 200 MW of peak-hour power (to be used from 0800 to 2400 h., Mondays through Fridays, except national holidays), at a strike price of 51 euros/MWh. Both products were offered at terms of one, two, and four quarters.
The base-load auction was settled in the sixth round of bidding, with the sale of 1,054 MW in three-month blocks (96% of the total offered). The peak-hour auction was settled in the fifth round, and 180 MW in 3-month blocks were allocated (90% of the total offered). Base-load buyers paid a product premium of 11,840 euros per MW/month at three months, 16,022 euros per MW/month at six months, and 17,627 per MW/month at 12 months.
A comparison with the prices fetched in the June auction shows a decline in products to be delivered in the last quarter from current spot and futures prices. Specifically, peak-hour power closed at 1,001 euros per MW/month for the quarter, 2,731 euros per MW/month for the two-quarter, and 3,642 euros per MW/month for the four-quarter.
Promoting Market Liquidity
Primary energy or VPP (virtual power plant) auctions are a mechanism used successfully in European countries to add liquidity to the forward market. This project posed a challenge to Iberdrola and Endesa, who managed to prepare the first such auctions in record time, despite the complexities involved.
When Royal Decree 1634/2006 was enacted, making such auctions obligatory in Spain, IBERDROLA and Endesa set to work to establish the legal framework, attract potential traders and customers, and ensure transparency and a level playing field. It launched the web site www.endesa-iberdrola-vpp. During the entire process advice was provided by IBM, experienced auction organisers, while Deloitte monitored compliance with all laws and rules, and MEFF, Spain’s official futures and options market, carried out the qualification process for all the counterparties, and will manage the process of nomination and settlement of allocations.