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.
- International political instability: 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.