Wednesday, October 20

How increases in the price of electricity affect you even if you have a fixed rate contract


The rise in the price of electricity in the wholesale market in recent months (an escalation that at times seems to have no end) has generated some striking results. For example, that some users of the free market are not only not suffering from rate increases, but are even pay less now than before.

How does the new electricity bill affect me if I am in the free market?

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In fact, according to explained in Congress Vice President Teresa Ribera, the invoice of the domestic clients of the free market, in the first half of this year, dropped an average of 4.6% compared to the same period last year. On the other hand, that of customers in the regulated market rose an average of 6.9% compared to 2020.

This is mainly due to the fact that the cost of what free market customers consume is not modified by what happens with the daily auctions of energy companies. This cost, for these users – some 17 million, representing 62% of the total – is fixed: it has been agreed in advance with the company.

If to this is added the fact that the government has taken some measures to relieve pressure of prices on consumers (such as the VAT reduction ordered in June), the result is that for free market customers the electricity bill did not change too much, and in some cases they were even favored.

It is, meanwhile, the users of the regulated market – the system called PVPC: Voluntary Price to the Small Consumer – who are directly suffering the exorbitant rate hike. These clients are around 10.5 million, 38% of the total.

All this situation has led many people who have contracted a fixed rate to ignore the matter, guided by the idea that the rise in electricity does not affect them. But it is a mistake: the increase also affects themundoubtedly in the same way as PVPC clients, and perhaps even more so.

Prices that will go up (or maybe they are already too high)

The first thing to know in this regard is that, despite the ups and downs of the PVPC, the regulated market rates are still lower than those of the free market. According to Ribera, they are on average 20% cheaper, even during the first half of this year.

Why, despite everything, are free market rates higher? Well, because, when agreeing with each user the consumption values, companies never lose: In exchange for the “security” offered by the fixed megawatt-hour rate, the companies set a higher price.

At the beginning of 2019, according to the electricity market consultant Francisco Valverde, that extra cost paid by users of the free market – compared to those of PVPC – was on average about 70 euros per year.

That same year, the National Markets and Competition Commission (CNMC) estimated the electricity tariff at 17% cheaper in the regulated market than in the free market. And in 2020, Facua calculated that, in certain cases, kilowatt-hour rates could be up to almost 60% higher in the free market than in the PVPC market.

But also, even in cases where free market users are paying less, at some point the company is going to modify its rates to “balance” them with the increases produced in the regulated market.

Each contract establishes each how long prices can be renegotiated, or the requirements that must be met to modify its conditions. In general, they involve giving a certain advance notice and giving the client the possibility of changing companies or going to the PVPC market without any penalty.

Moreover, if time passes and the company does not renegotiate the conditions of the contract, or does not change them too much, it will almost be worse, as it will be a sign that the rates established long ago they were already high enough so as not to have to compensate them because of the current increases.

Other factors that make the electricity bill more expensive

There are other factors that can make the electricity bill more expensive, regardless of the type of rate that is being paid. One of them is have contracted a power greater than necessary, which varies depending on how much energy will be required at the same time.

Which is the required power? In general, a small house with few appliances is enough with a 3 kilowatt (kW), or even less. A large one, for its part, with many appliances and an air conditioning system (air conditioning or heating), requires 6.9 kW or more.

If the leads have never jumped in a house despite having connected many appliances at the same time, it is likely that it has contracted more power than it requires. This often happens due to ignorance, as it happens to people who live in rent and never paid attention to this variable, decided by the owner or a previous tenant.

Ignorance also often leads to actions that are supposed to reduce the electricity bill but that don’t really make sense. One of the most common mistakes is to put the washing machine or other appliances to work at night in cases where the rate is fixed and the price of electricity is exactly the same at any time.

The time slots in which energy is consumed are valuable for customers on the regulated market (and in certain cases on the free market, minority, where there is also time discrimination). In those cases, yes it is advisable to use electrical appliances during off-peak hours -at night and on weekends- and not at peak times.

Therefore, in short, it is advisable to inform yourself well about it, pay close attention to the current contract and analyze the alternatives, because maybe it is convenient to change: type of rate, company, contracted power or some other of the conditions.

The importance of being informed in this regard seems obvious, but it is not. Barely one in four Spanish households knows the differences between the PVPC system and the free market in the energy sector, according to the latest data from the CNMC Household Panel, released at the end of last year.

It is true that this knowledge has not stopped growing in recent years: in 2017, households in which the difference between the two markets was known constituted only 18%. But it is evident that it is still far from reaching the majority of the population to allow it, in this way, to make the best decisions in the face of stellar increases in electricity prices.

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