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Why does the electricity bill go up?

Electricity price increases have always generated loads of talk, but few know how to explain the causes or propose a cure. We’ll tell you what electricity increases mean and how to prevent them from affecting your invoice.

Word occasionally goes around on the street or on the news that electricity prices have gone back up. The topic is addressed without going into depth, as if we all had the same rate and we paid the same.

In reality, if they tell you electricity has gone up, you have to ask yourself the same thing as when they tell you bread prices have gone up: what bakery are you talking about?

You can have electricity in a regulated system or an open system. Normally, when they say electricity has gone up, they're talking about the regulated system.

 

The open market and regulated market

In Spain, homes purchase electricity that consume in two different markets: approximately half of the country is in the open market and the other half in the regulated market.

Being in one market or another only depends on you and the freedom to choose is absolute. Changing from one to another is like changing a seller, a fast, free and simple process. 

  • Open market: hundreds of rates to choose from. You’ll pay what you put in your contract, and you can enjoy stable prices. There is absolutely everything, like for example a rate in which you can choose the hours in which electricity is free for you.
  • Regulated market: one single rate, PVPC, with a price that varies every hour every day as a function of supply and demand.
“When it is announced that electricity has gone up, they generally only refer to the regulated market (45% of Spaniards).”

Why does electricity go up on the regulated market?

When people or the news say that electricity has gone up, they generally refer to the kWh price on the regulated market. Why does this occur?

The kWh price on the regulated PVPC rate changes according to the offer and demand for energy. Its cost is fixed each day as a function of the retail market (those that generate energy send it to those that sell it) and a series of components regulated by the Government.

Taxes are included among these regulated components. For example, the 7% tax on electricity generation was “deactivated” between October 2018 and March 2019 by Government decision. Its return in April 2019 has created many newspaper headlines and certain alarm about being on the verge of an increase in electricity prices.

However, if this increase occurs, it will only affect clients on the regulated market and not those on the open market, who will continue paying what is stated on their contracts.

Apart from taxes, when price goes up on the regulated market, it is usually due to a combination of the following 3 factors:

  • Cold snaps and heat waves: peaks of consumption because many people turn on their electrical heaters or air conditioners. When demand goes up, the offer gets more expensive.
  • Drought and lack of wind: they cause a drop in the energy production of hydraulic power plants and wind farms, respectively. When these sources of energy go down, others must be drawn from, which may make the price more expensive at that time.
  • Evolution of international prices: certain conflicts and crises may affect the price of raw materials like petroleum and gas, which are directly related to generating part of the energy.
“Meteorological and international political instability affect the price of electricity on the regulated market.”

How to avoid electricity price increases?

To protect yourself from price oscillations, there are different formulas depending on the market you're in:

  • Regulated market: if your rate is PVPC, it is recommended to concentrate your electricity consumption on the cheapest hours. Using this tool,you’ll be able to know the prices with one single day of advance.
  • Free market: you'll know how much you are going to pay throughout the year. For example: Unica by Endesa has a fixed price that protects you from fluctuations. You pay the same amount every month and can also get refunds in euros if you succeed in meeting our energy efficiency challenges. The icing on the cake: there is no lock-in period.
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