Week after week an issue has occupied the news in Spain: the price of electricity. The wholesale market has reached historical prices during the autumn and winter months, closing the year above €300/MWh. The escalation, naturally, has sparked an intense political debate: why hasn’t such a drastic rise in electricity supply sparked widespread protest in the streets?
The report. We can glimpse an answer through this report prepared by Caixa Bank Research in which the median price of more than two million invoices issued during the last four years is analyzed. Verdict: Spaniards paid a very similar amount in 2021 (€743 per year) to what they paid in 2018 (€748). On a day-to-day basis, most Spaniards have not yet suffered from the escalation of the wholesale market.
Why? Because the price of pool it does not have a direct translation to the receipt of the final consumer, that is, of the Spanish families. Multiple factors operate, but for the case at hand one has turned out to be critical: the government. During the last year, VAT on electricity has been reduced, the electricity generation tax has been suspended and the regulated section of the bill has been cut. Much of the inflation has been offset by state intervention.
the competition. The free market has played another key role in this process. As we saw a few days ago, the large power companies, generators and marketers of energy at the same time, have resorted to bilateral markets to offer very adjusted rates to their customers. By owning nuclear or hydroelectric plants, whose generation cost is comparatively low, companies such as Endesa or Iberdrola have been able to offer cheaper prices on their bills than those set by the pool, closely linked to gas. They have played with advantage.
Comparative. Which brings us to the next point: not only has the domestic price of electricity remained stable over the last year, but in many cases it has dropped. The average monthly bill on the free market, which the vast majority of households take advantage of, has fallen by 14% compared to the fourth quarter of 2020 (from €73 to €61, the lowest in recent years). The clients of the regulated market (PVPC) have been less lucky: their bill has risen 32% in the same period (from €42 to €54).
The electricity bill (median value) in December 2021 compared to Dec-2020 was:
❌ 31% more expensive for Spanish families who pay according to the regulated market (with contracted power <10kw).
✅ 19% cheaper for those who access the free market. pic.twitter.com/cmjlSsPl1q
– Juan Luis Jiménez (@JuanLuis_JG) January 14, 2022
relativizing. However, two things must be taken into account. The first is that during 2021 the median bill on the regulated market was always cheaper than the median bill on the free market (around €40 per month vs. around €70 per month). The second is that the increase in the cost of the PVPC has only regularly affected the 10% of households with the most consumers (€120 bill in the fourth quarter of 2021). Households with more modest consumption in the regulated market, in fact, have also enjoyed a reduction in the bill (18% cheaper compared to 2018).
The future. The latter is due to the toll reform approved by the executive at the beginning of last year, one that actively penalized high consumption during peak hours. Despite this, these are bad times for the PVPC. Not only because of the high prices expected for gas in the short term, but also because of the interest of the European Commission in eliminating an anomalous rate in relation to the rest of the electrical systems on the continent.
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