The price of electricity in Spain is going to be the highest in Europe this Thursday: it has shot up to 140 euros / MWh, breaking a historical record for the fourth day in a row. This is the price of the wholesale market, the place where traders go every day to buy energy and sell it to the consumer.
“The wholesale market, in which the electricity companies play, is like the fish market,” summarizes Jorge Morales, promoter and director of Próxima Energía. “The traders are the fishmongers. The problem is not who sells you the energy, but where they buy it. If the auction is controlled by three companies, you can already have a million fishmongers that the price will not drop.”
A large rise in the wholesale market directly affects consumers with a regulated tariff, much more sensitive to fluctuations than the free or flat tariff. Consumers with regulated tariffs are 40% of households, while those who opt for the offers of the free market, in which the so-called flat tariffs predominate – the company sells you electricity at a fixed price every day and at all hours, with regardless of what the market does — they are the majority, 60%.
Those 60% of consumers should be calm before the news of the last months, because their rate is fixed and will remain outside the records of this month. However, that does not mean that they have paid little so far. Quite the contrary.
“The fixed price, as its name indicates, has no fluctuations. But those who talk about this do not usually explain that this price is equal to the top,” Morales continues. “Yesterday someone told me: ‘I pay 18 cents per kWh as usual and the increase has not affected me.’ If you have been paying that for five years, you have been harmed from the beginning, because the average of the regulated market in these years has been 10 cents The right thing to do right now is to say that both the free market and the regulated market are wrong. ”
“We have a rate comparator and we are very clear that people pay more in the free market,” they add from the Organization of Consumers and Users (OCU). “The free rates are expensive or very expensive. The offers are very misleading: they give them names like ‘tranquility rate’ or ‘star rate’, they offer you discounts in the first months, then they raise it and in the renewal of the first year the worst comes As they do not have the obligation to publish the rates, they apply whatever they want. Maybe some offer is interesting, but most of them are extraordinarily expensive, at Filomena prices all year round. ”
All of the above would explain why Spain is among the countries with the most expensive electricity in Europe. As shown in the following graph, which collects the prices paid by consumers (that is, fish prices with taxes included, and not those of the fish market) until September 2020, our country is repeatedly among the top five or six most expensive of the Eurozone.
On the one hand, free rates are more expensive than regulated ones. On the other hand, the design of the wholesale market transfers all its ups and downs to the regulated retailer.
The final price of electricity in Spain is not only more expensive than that of our neighbors, but it is among the ones that have risen the most in all of Europe in the last year.
The year-on-year evolution of the CPI (the consumer price index) for July reflects that electricity rose 26.9% in Spain compared to 1.6% in Germany or 3.1% in France. Although it is true that wholesale markets have behaved in a similar way throughout the continent, and that increases in the price of gas and in CO2 emission rights have caused all this situation, why when reaching the consumer to the Spaniards affect us more?
“The impact of the fish market price on the fish market is very different in each country,” Morales explains. “Not everyone transfers it in the same way.”
The pricing system is marginal in character throughout Europe. Every day the necessary electricity is auctioned, by time slots, to cover the demand for the next day. First, you start by selling the electricity produced with cheaper technologies, such as nuclear, wind and solar plants. If the demand is not satisfied with these technologies, they go to other more expensive ones and pay all at the price of these.
Following the simile of the fishmonger, it means that the traders pay the pangasius at the price of bluefin tuna (or all meat at the price of sirloin, as the journalist Aimar Bretos said). As explained by the Bank of Spain in a recent report, this system “generates benefits of considerable magnitude” for technologies that generate electricity at a lower cost.
The difference between Spain and other countries is in the management of the wholesale market. In France, the case that always comes up, nuclear energy is contracted at a fixed price to EDF (Électricité de France), a state-owned company with a nuclear monopoly. The marketers always pay the same for it. Although it is a very different situation from the Spanish one, this is the main claim of the consumer organization Facua to the Government: that it reform the pricing system and that “certain technologies come out of the daily auction and are subjected to a price system maximums set by the Government “. The third vice president and minister for the Ecological Transition, Teresa Ribera, assures that this fixed price cannot be raised in Spain because the EU would not allow it.
“In other European countries they have more competition in wholesale markets and other types of rates, indexed, but not controlled by the government,” Morales adds. Due to the high percentage of consumers with regulated tariffs (remember, more volatile because it is dynamic but usually cheaper), Spain is “a rare case”. Only seven EU member countries have dynamic rates and only in Estonia, Sweden and Spain is their coverage high, according to the aforementioned Bank of Spain report.
Another factor to take into account, says the founder of the renewable energy marketer Holaluz, Carlota Pi, is the productive capacity of Spain. “We are an electric island. Other European countries are well interconnected: here, everything that is consumed is generated within the Peninsula. If demand increases but production is the same, you need to resort to more expensive technologies. Hence the volatility be higher. ”
Spaniards spend less on energy … because they consume less
Despite the high prices we are facing, the weight of energy on total household spending is not very high in Spain and is below the Union average. This is reflected in the data from the Family Budget Surveys harmonized at the European level. On average, Spanish households dedicate 4% of their budget to energy (taking into account gas, other fuels and electricity), compared to 4.6% in Italy or 6.1% in Germany.
“Domestic electricity consumption is highly dependent on temperature,” says Morales. Spain, like other southern European countries, enjoys a more temperate climate and thus buffers its final expenditure on electricity and gas. “And not all homes have gas heating. In some areas the gas pipeline does not reach and electricity is used.” Certain countries have a higher level of “electrification”, and more penetration of the electric car.
“There are also countries where the electrification of hot water is more common,” adds José Donoso, general director of the Spanish Photovoltaic Union, indicating that the bad news about the price of electricity is increasing the interest of Spaniards in self-consumption. “Not all countries have gasification as strong as Spain. In the Union there are very heterogeneous countries and then within each country there are many differences between north and south.”
This data is an average and will not only vary by geographical area: also by income. Lower-income households tend to consume less but spend a larger percentage of their budget on energy, while higher-income households consume more because it takes less effort. According to the latest energy poverty indicators, corresponding to 2020, 7.6% of the Spanish population has problems keeping their homes at a suitable temperature in winter and 6.6% have delays in paying utility bills.
On this other graph From Eurostat are the European countries ordered by electricity consumption per capita in households, not energy in general. Spain is in the middle of the table, well below Sweden, Finland, France or Austria.
It is possible that with the latest increases in the price of electricity these indicators will worsen. There are reports from private entities that already indicate that Spanish families spend, on average, 5% of their income to pay for supplies. Although the demand for electricity is elastic in the long term (that is, if the price rises a lot, people will reduce consumption to pay less), Morales does not believe that the current situation will cause a fall in demand.
“If you keep the price very high for a long time, people instead of putting the washing machine down to the laundry. But I don’t think that will happen,” he concludes.