The price of electricity skyrocketed again last week due to the heat wave and all the alarms went off with gasoline and diesel also at highs for the whole year. It chained several days above 100 euros megawatt hour (MWh) and reached its highest level in six months. The cause was increased consumption to combat the high temperatures and the rise in the price of gas and CO2 emission rights. However, this situation has no longer caught many consumers off guard as it did at the start of the energy crisis, in the summer of 2021.
According to the latest data available from the National Commission for Markets and Competition, there are some 30 million electricity customers in Spain, of which 21.5 million are in the free market, compared to 19.8 million at the end of 2021, when the marketers embarked on an unprecedented commercial offensive ensuring fixed prices. In addition, users of the liberalized market are also benefiting from the Government’s tax cut. Until December 31, a 5% VAT is applied to electricity, while the Special Tax on Electricity is reduced to 0.5% (the minimum allowed by Brussels) and the Tax on the Value of Energy Production Electricity (IVPEE) of 7% is suspended.
Before the energy crisis broke out, a customer with a regulated rate has been paying less for the electricity bill, according to data published by Competition. On a regular basis, consumer organizations have denounced that large companies have promoted free market rates because they are more profitable for them than for consumers in exchange for promises of savings, at least in the short and medium term. However, it is true that with electricity completely skyrocketing after Russia’s invasion of Ukraine, the customer in the free market has come out ahead because they have agreed to a lower price than the wholesale market.
Massive loss of customers in the regulated market
Under this scenario, the leakage of the Voluntary Price for the Small Consumer (PVPC) to the liberalized market has been massive. Before the summer of 2021, it had more than 10.5 million customers and, currently, there are around 8.5 million people. It was at the end of 2021 when Iberdrola, Endesa and Naturgy launched to conquer customers covered by the regulated rate, taking advantage of the fact that they were suffering from the rise in electricity prices in the wholesale market (pool).
The campaigns of the large electric companies started at 58 euros per megawatt hour (MWh) and ensured stability for years. Consumer organizations once again warned that strong price increases were being registered in the free market and called for “extreme caution.” The commercial ‘war’ increased with the implementation of the ‘Iberian exception’, in June of last year. With the mechanism, the economic conditions of the regulated market changed and the free market traders adapted their rates to make them more competitive and, therefore, continue to attract customers.
Endesa has been the last electricity company to break into the market. At the beginning of May, it launched a campaign rewarding those who are already its customers and those who sign up for any of the rates it offers on the free market for ‘non-consumption’ of energy. Likewise, and in order to continue advancing in its goal of reaching 7.3 million ‘free’ customers, it has launched a promotion with a 20% discount on electricity consumption for one year. From the second year and indefinitely, the discount will be 10%.
In order to reduce volatility and, therefore, mitigate the impact on the pocket of clients in the regulated market (the only one that allows them to take advantage of the social bonus), the Government (now in office) has approved a new rate. It will enter into force on January 1, 2024 and will introduce correction factors so that it largely reflects the daily market price and also the most stable prices offered by the three-month and one-year future markets.
Reduce the link of the PVPC to the daily market
It will incorporate a basket of medium and long-term prices to avoid strong fluctuations, although without losing the short-term price references that encourage savings and efficient consumption. “Consumers will not have to do anything,” they say from the Executive. Indexed to the daily prices of the Iberian Electricity Market (Mibel), the PVPC has historically been the cheapest option for small consumers since its creation in 2014. However, this direct relationship with short-term wholesale prices has led to that its variations, with sharp peaks and rises due to the Russian invasion, are automatically reflected in the final bill.
The idea is to progressively reduce the PVPC link to the daily market and to take into account the more stable prices offered by the Mibel forward markets, where energy is purchased in advance in different future time horizons. For this, the price oscillation – the variation between the maximum and the minimum register – is reduced by a third, going from 27% to 17% during the day, and from 23% to 16% in the monthly average during the entire year.
Before the energy crisis began, 60% of Spanish households did not know if they had contracted the regulated tariff or one of the free market, according to the panel of Competition Households corresponding to the second quarter of 2021, just before the price explosion . .
Free or regulated market?
According to the CNMC energy offer comparator, for an average home with a contracted power of 3.5 kilowatts (kW) and an average consumption of 3,300 kilowatt hours (kWh), the regulated rate has an annual cost of 700.12 euros, while the cheapest on the free market is around 622.42 euros.
