What does the price of electricity depend on?
Electricity is invoiced by calculating the kWh consumed by the user at the applicable price. However, it is not quite so simple, as there are several components within the bill, each of which has a price that depends on external factors. The first factor is raw materials, the abundance or scarcity of which may depend on geopolitical conditions.
Not surprisingly, for a long time Europe has been seeking greater energy independence by reducing imports of hydrocarbons (gas and oil) from abroad. This is an objective that requires large-scale investment that end up being reflected in the citizens' bills.
The strong growth in renewable sources particularly affects energy production costs.
These sources also depend on certain climatic conditions that may increase or decrease their availability and consequently alter their price. Having said this, the energy used by consumers is usually a blend of all sources, so the final price is also the sum of all these factors. Finally, other elements that affect the price of the electricity bill are energy taxes and climate.
The different time bands
In Spain there are two different energy markets:
- The free market, where the kWh costs what is confirmed in the contract signed by the user with the suppliers in the country, for which there are a number of plans and offers.
- The regulated market, where the price depends on supply and demand. The suppliers take part in bids in which a different price is set for each hour of each day, without the possibility of this being anticipated.
When demand is at a peak, the price is more expensive. That is why Saturday and Sunday are the days with the lowest tariffs. The new feature is that, starting in June 2021, there will only be one access tariff: 2.0TD. A system based on three price bands will be implemented, these will differ depending on the time and on the day.
From Monday to Friday, there will be 3 time bands: peak, standard and off-peak. Consumption in off-peak hours will be much cheaper, practically half, coinciding with the time when there is less activity: From 12 midnight to 8am. Electricity will be most expensive during the peak hours: 10am to 2pm and 6pm to 10pm. Then there will be an intermediate price from 2pm to 6pm, which is very useful for those who cannot use the washing machine very early in the morning.
The 24 hours of the day on Saturday and Sunday will be off-peak hours, with no separate time bands. The same goes for national public holidays with a fixed date. For example, 6 December and 1 May.
How the costs are distributed
The average annual consumption of electricity per household in Spain is 3,487 kWh, with the single-family homes using much more energy, with an estimated consumption of 3,754 kWh compared to the 3,373 kWh for those living in flats. Of course, average consumption also depends on the number of people living in a household and their geographical location.
With regard to how energy expenditure is distributed, there can be a great difference if the heating is gas or electric. In the latter case, that would be the main item, responsible for more than half of the total expenditure. The same can be said for the cooker on whether it is gas, a ceramic hob or induction.