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How does the energy auction work?
The energy auction called CESUR is run by OMIE (the Operator of the Iberian Energy Market - Spanish Pole) and is supervised by the National Markets and Competition Commission (CNMC).
This auction is held every three months, and its price is used to establish the tariff that consumers with the last resort tariff will pay. At this auction, the buyers are last resort traders, and the sellers are financial institutions, or national as well as international companies involved in electricity generation or trading.
Several weeks before the auction, the last resort traders give the CNMC their forecasts of their customers’ consumption for the following quarter. The CNMC analyses this information together with the Ministry of Industry, deciding how much energy will be bought at the auction, and publishing a Resolution convening the auction and stating the date of the auction and the amount of energy intended for purchase.
Companies interested in participating as sellers must be previously accredited by the auction Administrator (OMIE).
The Administrator establishes the starting price, and sellers bid for the amount that they are prepared to sell at that price. The total sum of these bids (energy offered) is greater than the energy auctioned (intended for purchase). At this point, a series of rounds begin at which first the Administrator reduces the price, and then the sellers adjust their bids downwards (reduce the amount of energy that they offer). At the end of each round, the Administrator compares the energy offered with that intended for sale, and if there is still a surplus on offer, a new round begins.
The process, which tends to last several hours, ends when there is no surplus offer. At that moment, the price of the auction is the one defined by the Administrator during the last round and every seller is bound to sell the quantity that they bid for during that last round.