Energy Market Prices in Times of COVID-19: The Case of Electricity and Natural Gas in Spain

Abstract

The COVID-19 pandemic is having a strong impact on the economies of all countries, negatively affecting almost all sectors. This paper compares Spanish electricity and natural gas prices in the first half-year of 2020 with the prices expected for that period at the end of 2019. The half-year of 2020 selected coincides with the period of greatest impact of COVID-19 on Spanish society. Expected prices and their future probability distributions are calculated using a stochastic model with deterministic and stochastic parts; the stochastic part includes mean-reverting and jumps behaviour. The model is calibrated with 2016–2019 daily spot prices for electricity and with day-ahead prices for natural gas. The results show large monthly differences between the prices expected at the end of the year 2019 and the actual prices for the half-year; in May 2020, wholesale electricity prices are found to be EUR 31.60/MWh lower than expected, i.e., 60% lower. In the case of natural gas, the prices in the same month are EUR 8.96/MWh lower than expected, i.e., 62% lower. The spark spread (SS) is positive but lower than expected and also lower than in the same months of the previous year.