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The 2 electricity markets: free and regulated

A lot of people don't know the answer to this: "do you pay for your electricity on the free or regulated market?" There are two ways of paying your electricity bill. It is important to know the difference between the two: what changes is the price that you are going to pay for the energy.

Press the switch and the light goes on. "As if by magic" - but this all depends on power plants which generate energy and the utility companies which sell the energy and send the bills to the end consumer.

In fact, your bill will tell you the answer to that very important question: are you on the free or regulated market?

This different is important because it affects what you are going to pay for the electricity you use. And because you have absolute liberty to choose which of the two you want to use.

Half of the Spanish households (13 million) are on the free market and the other half are on the regulated market. But the free market is on the up, in fact in recent months it has overtaken the regulated market.

 

Am I in the free market or in the regulated market?

First things first: what is your market? If you don't know, it is easy to find out. Just look at the top of your bill:

If it says Endesa Energía S.A. Unipersonal then you are on the free market and you are with Endesa:

Factura Endesa del mercado libre

But why are there two different markets?

In the past, the entire electricity market was regulated and prices were set by the government.

The market began to be deregulated in 1997. Within this process, 2009 was a very important year:

Since then, consumers have been able to choose who they are going to pay their bill. At the moment, they can choose from almost companies which sell electricity.

The market liberalisation process is not yet complete, however, and the regulated market still exists. The two markets share two of the three basic parts of each electricity bill:

  • Access fees:these are set by the government and are used to pay the costs of maintaining the electricity grid and transporting the electricity to your home.

  • Taxes: Special tax on electricity and VAT.

  • What is different in the bill is the price charged for producing electricity.

This called the PVPC tariff (Voluntary Small Consumer Price). This price changes hourly and daily demanding on the balance of supply-demand between whoever is producing energy (the generation company) and whoever is selling this energy to consumers (the company selling the electricity).

If you have a smart meter, then this complex prices curve is applied to your bill. This means that your bill will go up if you consume more electricity at expensive times of the day and will go down if you consume more at the cheaper times.

All consumers can ask to pay the PVPC rate as long as they have a contract power of lower than 10 kW. And they can only do so with certain authorised companies which sell electricity.

On the regulated market, the kWh price changes from one day to another.

Here are the rates of all the free market retailers (there are almost 100).

The price is set by the company, which announces it and puts it in the contract - just as with other services such as telephone, etc.

You know how much you are going to pay for each minute - and with your electricity, you can have the same peace of mind, as you know how much each kWh you consume will cost you.

On the free market, the price per kWh is what is says in your contract.

Advantages and disadvantages of both markets

There are differences between one market and another, so it is up to you to choose the one that suits you best according to your priorities. Below we set out for you the most important differences between the two:

 

PVPC Regulated Market

The rate regulated by the Ministry is called the PVPC (Voluntary Price for Small Consumers).

The biggest advantage and at the same time the biggest drawback is that it changes every day and every hour. Therefore, its price varies depending on what the electricity market dictates. For example, electricity is more expensive in winter and summer, as there is more energy demand for the use of heating and air conditioning. On the other hand, it is cheaper in spring and autumn, when temperatures are more stable.

The price is also affected by trends (up or down) that can occur in the electricity market due to any external factors.

On the other hand, when the price is applied to each consumption at that specific time, each consumer, depending on their times of consumption and their habits, will obtain a different price, so fluctuations in the price will make it practically impossible to know how much we are going to pay for our daily consumption.

The regulated PVPC rate is offered only by some providers. Furthermore, their number is limited and they cannot sell the energy in the free market, nor do they allow you to contract other services.

It does not have a minimum contract duration, it is compatible with time-of-use (TOU) rates and can only be contracted if you have less than 10 kWh of power.

 

Free Market Rates

Free market rates have the main advantage that, as the name implies, they are set freely. Therefore, discounts can be applied, supplies can be combined (electricity + gas) and they are usually much more stable for the consumer.

This allows you to know in advance how much you are going to pay and that, in some cases, your electricity will be even cheaper than if you had contracted a rate in the regulated market. With freedom of rates, you can get a great price if you adapt to the type of consumption that costs you the least based on your rate and, also, if you change your lifestyle, you can always find a rate adapted to it.

On the other hand, the negative part can be that the consumer is required to pay more attention when contracting their rate (since each one adapts to a certain type of consumption) and, in addition, the rates may be revised over time.

 

Can you change from one market to another?

Of course. Liberalisation means just that - being able to choose. Anyone who wants to change from the PVPC rate is welcome to use the free market. Consumers who are on the free market can change to the regulated market, as long as their contract power is not above 10 kW.

All consumers are entitled to change to the free market whenever they wish.

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