How much electrical power do you need to contract for your company?

Always remember that the energy consumed at a supply point is variable and depends on what the supply is used for each month. For example, if no electricity is consumed in a particular month because the property is closed, this will result in no energy charges on the bill for that month.

But this is not the case with the cost for power, which is why it is called a fixed charge, because it is paid every month depending on the contracted power, and regardless of how much energy has been used during that month.

Continuing with our example, even if there has been no consumption for a month because the property has been closed, the power term will be paid in full.

The cost of this term usually represents between 10% and 20% of the total invoice, but if your contracted power is more than what you really need, this percentage could be much higher. There will also be a problem if you contract less power than what you really need because you may have to pay a cost for excess power, which could also make the bill much higher.

So you need to make a careful study of how much power to contract at any given time, so in this article we will analyse the most appropriate way to do this.

What is the maximum power you can contract?

The first thing you need to take into account is the maximum power that the installation may require at any given time, and this information can be found in the Electrical Installation Certificate (hereinafter CIE), also known as the Bulletin, and this is provided by the authorised electrical installer when the installation is completed.

This CIE or Bulletin will indicate the maximum power that the installation may require, and this operates as the limit for the power to be included in supply contracts with the retailer, and contracts for access to the grid with the electricity distribution company (usually through the retailer who acts on your behalf with the distributor).

If you have not personally been responsible for the installation, for example if the factory, office, commercial premises, etc. have been bought or rented, you will need to request this document from the owner or previous owner, as it is essential for determining the maximum power.

The Electrical Installation Certificate is valid for 20 years, but if it has expired or been lost, you need to obtain a new one from an authorised installer who will inspect the installation and make any necessary changes before signing a new Electrical Installation Certificate or Bulletin with a new validity period.

The installer will ensure that the installation (wiring, plugs, connectors, protections, etc.) supports the necessary power for the elements that are going to be connected.

Normally, for commercial premises the power will be determined taking into account the possible use. For example, if the premises are going to be used for hospitality, then there will be electric ovens, fryers, etc. and the sum of the powers for each of these elements needs to be taken into account; and if the premises are for a hairdresser, the sum of the powers used by the dryers will be different.

What are access and extension rights?

When the power is contracted for the first time, in the registration of the installation with the distributor (this is usually done together with the first supply contracts with the retailer) you will have to request a power to be contracted with the electricity distributor, which is the company that owns the low voltage or medium voltage network in the neighbourhood or industrial estate where the business is located.

The distributor's area technician will check whether they can do any of the following:

The first possibility, and also the most usual, will be to provide the power as requested, in which case you will need to pay the connection charges which mainly consist of the access and extension charges for that power. These are fixed amounts expressed in euros per kilowatt contracted, and they are necessary to compensate for the investment costs for the transmission and distribution networks required to provide this power to your installation. You only pay once when making the first contract for access to this power, and it gives you the right to have it contracted for the future without a time limit.

However, if at any time you stop using the power (for example, by reducing kilowatts, or cancelling supply) you can keep the power for up to three years in low voltage or five years in medium voltage, because after that period it would expire and it would be necessary to reapply. If you reconnect or renew the contract for the same kilowatts during this period of three or five years, you will have to pay the access fee again. The price for this is established by law, and you need to be aware of what has been published in the Official State Bulletin in this regard (currently the values according to ICT Order 3519/2009 apply).

Together with access and extension fees, you also need to pay a connection fee and a verification fee as constituent parts of the connection fee, as well as actions with regard to metering equipment (a meter) installed by Endesa, which is also a single payment and will only need to be paid again in the future if any changes are made to that equipment.

The second situation that may arise would be that they cannot provide us with the power we have requested because the distributor's technician assesses that this power exceeds the available power that the electricity grid in that area can offer. In this case, the distribution company will provide a proposal with technical and financial conditions, which consists of an estimate of how much it would cost to strengthen or expand the network to the supply point in order to be able to supply the necessary power. If you agree to pay this budget, they would do the necessary work to provide you with the required power.

It may also not be feasible to supply the necessary power via the low-voltage network, as indicated above, because it does not support higher powers, or because it is physically distant from the supply point but it can supply power from a nearby medium-voltage network. In that case, a connection point to the above-mentioned network would be provided, and a sub-station would need to be built (from medium- to low-voltage) and a line connecting this substation to a connection point with the distributor's medium-voltage network.

What happens if you have contracted more power than you need?

While the electricity supply contract remains valid and once the requested contracted power is available, there should be monitoring of the real demand for power each month.

The monthly bill includes the power demanded, and if you detect that it tends to be lower than the power contracted, this means that you would be paying more for a fixed term that is actually higher than necessary. In other words, you would be paying every month for kilowatts of (contracted) power that exceed the kilowatts that the installation really seems to need (power demanded). So by requesting a reduction in the power contracted for your company in order to adjust contracted power to the power actually required contracted to the demanded, you would make a monthly saving by paying a lower fixed charge.

However, you should remember there is economic expiry as well as to access and extension rights and you should also take into account the power programmed for the meter, but more about this later.

What happens if you have contracted less power than you need?

But it is possible that the opposite may be the case, that is, in each monthly bill you may repeatedly or frequently observe that the power demanded by your installation is higher, even much higher, than the power contracted.

In supplies up to 15 kW this is not possible, since "the fuses would blow", that is, the circuit breaker (ICP in Spanish) in the metering equipment would come into operation because whenever you demand more power than what you have contracted, the power supply is automatically cut off, preventing further use.

But with power supplies greater than 15 kW there is no ICP, so it is possible to use more power than that which has been contracted. In this case, the ordinary cost for the power term appears in the invoice, with an additional amount corresponding to the extraordinary cost for exceeding the contracted power.

This excess power is a penalty provided for in the legislation, with a view to preventing the holders of electricity contracts from repeatedly demanding more power than that contracted, since distributors organise their networks, investments and maintenance costs in accordance with the power contracted by customers. If they then demand higher powers, there will be cost overruns and problems with resources so a penalty is charged for exceeding the power contracted which acts both as a compensation and in order to discourage customers.

The price for exceeding power is also established in the legislation in force at any given time, and is usually updated every year by the CNMC (when access tariffs are published).

The legislation (Circular 3/20 CNMC) also includes a formula for calculating the cost to be included in the invoice, based on the recorded excesses in the supply and the published price for these excesses.

For supply points with a contracted power of less than 50 kW, excesses in power are recorded for each hourly period in the access tariff during the invoicing period. In other words, if the bill is for a specific month, and during the days of that month more power than the contracted power for that period has been demanded at some point (specifically, for more than 15 minutes non-stop), in each time period that is invoiced in that month (P1, P2, P3, P4, P5, P6), this will mean an excess to be penalised in accordance with the formula in force in the legislation for that month.

For those with a contracted power of more than 50 kW, any excess demand is recorded separately every 15 minutes, and the formula involves totalling the penalties for each quarter-hour period where there has been excess demand.

In these cases what would be most appropriate would be to increase the contracted power to stop paying for excess use, since the price of the penalty will always tend to be higher than the ordinary fixed price for the increased kilowatts of power.

But you should take into account the following points related to the calculation of the appropriate power and the additional problems that may arise and will need to be managed when assessing the increase.

What power should you contract?

In the preceding points we have analysed what happens if you have more power than you need, or less power than you are really demanding.

But what you will be asking is how to calculate the appropriate power. This ideal power should be such that the annual cost for the fixed power term, plus any excess power demanded, is less than the annual cost before the change. In other words, the ideal power to contract would have to enable you to reduce the total amount (even if some excess is paid).

Since, as we have seen, the cost is a function of different variables, such as the contracted power in each period and each month, the power demanded in each of them, the price of the power term in each month and period, plus the price of the excess term when there are any, the calculation involves mathematically finding the minimum or optimal point of this function. So the most suitable way to programme the function is to use a calculation tool (Excel, Python, etc.) and find the optimum for the function using derivatives.

What limitations do you have to modify the power?

Having used mathematics to help you calculate the optimal power, there are still a number of additional issues to verify.

Firstly, you should bear in mind that if your electricity meter has indirect measurement, it will contain small elements called "intensity transformers" or "current transformers". These elements vary by power bracket, so if the new power to be contracted is outside the range of the transformers, it will need to be changed. You need to consult with an electrical installer to find out whether this will be necessary and how much this will cost in your case. This will enable you to assess the cost and compare it with the savings that you have calculated as a result of the modification of power.

Secondly, you should remember that the Electrical Installation Certificate or Bulletin certifies a maximum power for the installation, and this is valid for a maximum of 20 years. You need to ensure that the new power does not exceed that in the Electrical Installation Certificate and that it has not expired.

Thirdly you need to take into account access and extension rights. If you are going to increase power and the new calculated power is above the rights you currently have, you will need to make a new application with the distributor to increase power, and you will have to pay the access tariff for the increased kilowatts. As we saw above, they may not be able to provide you with the required power and you will need to incur an additional cost (to strengthen the distribution network, with technical-economic terms and conditions, etc.). And if you are going to decrease the power you should remember that the rights are forfeited when the power is decreased (if you increase it again they will need to be paid again) and they are lost three or five years after decreasing the power.

Fourthly and last but not least, you should always bear in mind that we are speaking about 'power' generically, but there are six power levels in the contract, from P1 to P6, in accordance with the access tariff time bands. You need to follow the general rule with regard to increasing power in the new contract, and make your decisions knowing that P6 power, which is always the highest in the contract (by effect of that rule), is the one that determines for the Distributor the issue of connection rights, and the issue of power transformers. Therefore, if the change only affects the other power terms, these two issues may not need to be addressed.

How many times can the power be changed?

As a rule, the power can be changed every 12 months. The regulations specifically state that the distributor may deny a power modification unless at least 12 months have passed since the previous modification.

If you are going to decrease the power and at least 12 months have not elapsed since the previous modification, the distributor will probably deny your request, until the time stipulated in the regulations has passed.

However, distributors tend to be more permissive when it comes to increasing power, and they may study or approve the increase even if at least 12 months have not elapsed since the previous power modification. However, this must be seen in each specific case, because they could also oppose the legal precept.

In addition to the general precept, there are exceptions also contemplated in the legislation:

The first of these is where there is a significant change in the structure of the access tariffs. For example, if the regulator restructures the time bands or periods for the tariffs (as happened in 2021), this would involve a significant change, and in order to adapt, clients could adjust power levels, even if 12 months had not passed since the previous change.

Secondly, the flexibility measures approved by the Government for situations of crisis, such as the one arising from the COVID virus, or more recently the war in Ukraine, may include the right of the customer to change the contracted power after a period of less than 12 months.

Therefore, customers should always be aware of the regulations in force, to study whether a power change can be undertaken, or if it could be refused because the necessary time period has not passed.