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Tuesday, June 28, 2022

Key to Electricity Bills: Why Have They Soared? Which contract do I have and which one suits me?

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— The story is long, but it can be summed up in a single factor: the explosion in the price of fossil fuels used to generate electricity. In the last year, the price of natural gas on the international markets has increased fivefold, and at the beginning of March, just after the outbreak of the war, it increased tenfold. And coal has tripled. Being a marginal system, where the technology delivering the last megawatt-hour (MWh) sets the price for all the electricity that hits the market, this price explosion has gradually contaminated the rest of the energy sources. The numbers speak for themselves: 50 or 60 euros per megawatt hour in the wholesale market before the pandemic has become almost 200 in no time at all.

What was done in Spain? And in the rest of Europe?

— By last day 15, when the famous gas cap came into force, the Spanish authorities had been studying two options to try to contain the escalation: the fiscal one – with an overall reduction in taxes (VAT, production and special taxes) – and a Reduction in benefits for electricity companies, in addition to an extension of social security, which can be accepted by lower-income households and large families.

— The tax cut and the extension of social security have eased the pressure, albeit only partially and from population groups. In the first case, there is the paradox that consumers on the free market (where the terms are agreed by the customer with his electricity company) have paid less in recent months than a year ago: their tariff still reflected pre-crisis prices and at the same time have theirs Tax bill significantly reduced. But this effect has numbered its days: There are only a few households that have not already had to extend their contract with higher prices. For its part, the cuts in electricity companies’ overpayments have been very discreet: their design allowed the companies an easy escape.

— Unlike other European countries such as Italy, Great Britain, Greece or Hungary, Spain has not yet approved a concrete increase in taxes on extraordinary profits from energy companies. This mechanism, endorsed by the European Commission, is gaining popularity in the Spanish government: Executive number three Yolanda Díaz wants it for now, and Minister Teresa Ribera has opened the door to an increase in taxes on electricity companies, oil companies and the gas companies in the next budgets.

Which contract do I have and which one suits me?

— Spanish households can opt for the regulated market — a single tariff for all customers, with daily and hourly variations depending on what’s happening on the wholesale market (where the price explosion took place) — or the free market — with the electricity companies negotiating the conditions directly with the client—. The former suffered much more from the crisis than the latter: they had no protection and the increase in electricity prices hit them immediately and disproportionately. Those who have been on the open market are now beginning to suffer horrendous renewals after a few protected months as marketers internalize the new pricing environment in their offerings.

— If the gas cap works, the incentive to switch from the free market to the regulated market (aka PVPC) is strong. For those who need to sign a new electricity contract, the regulated market, which tends to be cheaper over the long term because the margin of electricity companies is lower, is likely to be cheaper.

What is the fuel cap? It will work?

— The mechanism, for which there is no precedent, is that both Spain and Portugal – established as energy islands with the approval of Brussels – have the power to cap the price of gas and coal used to generate electricity. Goal: Avoid contamination of the rest of the market. In return, consumers themselves must compensate the plants that burn both fuels.

— The government claims that the net impact of this addition and subtraction will be positive for both users in the regulated market and those operating in the open market who have an indexed tariff themselves. However, these first application measures ring alarm bells: the reality, always so stubborn, suggests that the profit on days when the share of gas and coal is minimal will be much greater than on those when the gas generates a large one amount of electricity.

Will prices go down soon?

— There is some evidence that the gas price cap for power generation will relieve the pressure in the medium and long term. But others also assume that autumn and winter will be turbulent on the international gas markets, always marked by Putin’s war, which will put additional strain on the bills. Also, when it comes to capping the price of active gas, the higher the price goes, the higher the compensation to be paid by consumers. A significant reduction or at least stabilization in electricity and petrol prices is essential to reduce inflation, which has become the major economic problem of our time. —EPS

Artistic intervention on the price of electricity, the work of the collective StoolStreetArt and Abraham Calero, in an old high-voltage tower in Campanar (Valencia).

Source elpais.com

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