1/12/18 · Research

The electricity sector and consumer vulnerability

In the last ten years, household electricity bills have risen by 70%
Foto: <a target="_blank" href="https://unsplash.com/photos/fmTde1Fe23A">Unsplash / Johannes Plenio</a>

The Spanish government has stated that in 2018 it will once again freeze the part of the electricity bill that it regulates. However, this freeze, which has been in place since 2015, is not preventing consumers from ending up paying more and more every year. In fact, the Spanish Energy Minister, Álvaro Nadal, has admitted that in 2017, the average bill went up by 100 euros compared with 2016, and by 70% in the last ten years. Experts claim that only with a State agreement that radically restructures the sector will it be possible to truly reverse the situation and to ensure that the consumer is adequately protected.

The structure of the sector is as follows: the companies selling electricity are the same as the distributors, the State intervenes in the sector and the elements of the final bill depend on a number of elements. In view of this way of operating, only a structural change within the sector which breaks the monopoly of the companies, and a clear commitment to renewables, can provide the starting point on the road to a solution.


What are the elements that comprise an electricity bill?

About 35% of what the electricity companies charge is the price that the sellers pay to the electricity wholesale market; this is a market that operates by auction. How the auction works also plays a role: a forecast of consumption by time bands is made for the following day. For each hour, the demand is met by the cheapest supply, but the price of the most expensive technology is what decides the final price.

26% is made up of taxes – 5% for the electricity and 21% VAT – and the remaining 40% is composed of other charges; these include transport, distribution, incentives for renewables and the depreciation of the industry's fee deficit. This percentage is set by the State.


Personalized rates can make bills 26% more expensive

Presently, small consumers can choose from among three billing types: small consumer voluntary price (PVPC), regulated price and personalized rate. According to the comparative study of free-market rates by the consumer association FACUA, although this last option is personalized, it can make bills up to 26.2% more expensive.

Aura Ester Vilalta Nicuesa, researcher with the DDI group of the IN3-UOC, and an expert in civil law, consumerism and contracting, advises using the National Market and Competition Commission’s bill simulator for anyone on PVPC. "It may be a good option to take out a good fixed rate, for example if you use electricity for heating, and there is also the possibility of group electricity buying, which is organized by the consumer association OCU", Vilalta points out.

Although the market has become progressively liberalized, the State has maintained a degree of regulation of the system as it is a strategic sector. FACUA denounces the fact that the competition between distributors that was promised with liberalization has not materialized. In addition, it also asks for a reduced VAT rate to be applied, instead of the normal rate of 21%.

In fact, the Spanish National Securities Market Commission (CNMV) has initiated disciplinary proceedings against Gas Natural and Endesa for an alleged manipulation of electricity prices last winter. It accuses them of having caused a price rise by raising the supply price from their gas power stations during the market matching process. Taking advantage of the cold snap, both companies forced gas or combined-cycle power stations to enter the market to generate energy, pushing prices up.

Another of the underlying problems is that the Spanish government has never had a clear energy policy, to the point where Spain is one of the economies most reliant on foreign countries for its energy.

"To this, we have to add the role played by renewables", adds Daniel Liviano, professor with the UOC's Faculty of Economics and Business. Liviano, who is also a researcher with the i2TIC group of the IN3-UOC, recalls that in 2011 the Spanish government abolished the incentives for the installation of photovoltaic panels for self-supply power generation. "This was a serious blow to many small investors and consumers who had chosen this option", he says.

In addition, Law 24/2013 on the primary electricity sector, and then the famous Decree 900/2015 on electricity self-consumption, also known as the "sun tax", have worsened even more the impetus of renewable energies in Spain. "This regulation, entirely out of step with the EU trend of promoting renewable energies, is a huge disincentive to investment in this type of energy, as well as fostering illegal self-consumption". The researcher labels it all as "absurd", especially when you consider that Spain is one of the countries with most hours of sunlight in Europe.

Experts UOC

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