If you prefer to always view the website in English, please click here.

The key to understanding why the price of energy has increased so much

CO2 emission rights and high demand for gas are just some of the factors that directly influence the price of energy and, therefore, the electricity bill. We will explain the key to understanding why it has increased so much.

At a time when you are getting so much information about the rise in the price of energy, it is essential that you understand why this is happening. There is a reason for everything and, when the real cause of the problem is explained, it is easier to find a solution. That is why we will explain the key to understanding the price increases that we are experiencing. 

 

What factors influence the price of energy?

The price of energy, and therefore the electricity bill, is affected by the following five main variables: The available electricity production mix, weather conditions, the price of CO2 emission rights, fuel prices and demand.

The energy with a lower variable cost is renewable energy, but in Spain it is not yet sufficiently developed and it is not possible to cover all the demand only with this type of energy.

It is also a type of energy that is not completely reliable because it depends on weather conditions. For example, when there is less wind it is necessary to resort to the energy produced in combined cycle power plants that use gas as fuel.

The price of gas has risen sharply due to growing demand from Asia, particularly China, and a number of factors that have limited its transport from the countries that produce it. In Europe we depend on imported gas, so we suffer directly from the rise in its price, but it is estimated that this crisis will be temporary and that in the medium term prices will fall.

The production of energy in combined cycle plants is also associated with CO2 emission costs: These are the emission rights established by the European Union. These rights come at a high price so countries will prioritise the use of zero-emission technologies and thus combat climate change.

 

Who decides the price of energy?

The daily market price for energy is a reflection of the cross between supply and demand (and this is common throughout Europe). It determines what energy prices will be at all hours of the day. The daily market is a wholesale market, and its function is for marketing distributors and generators to be able to adjust customer demand and energy production.

Spain is the only country in the world that has a regulated PVPC tariff (Voluntary Price for the Small Consumer) that transfers the price of energy on the daily market directly to the consumer. That is why, when the wholesale market rises sharply, so does the price paid by consumers with the PVPC tariff. Although it also benefits from periods when the market is very low, as happened in 2020. That is, these are the consumers who are most subject to market volatility.

 

Who is affected by the rise in energy prices?

Customers subject to PVPC currently account for around 10% of the country's energy demand. This 10% includes practically half of domestic consumers, so the impact on many families of fluctuations in the wholesale price is very significant.

The rest of the customers are not affected because they have a different type of contract that is a part of the deregulated market. In these cases customers pay fixed prices for at least one year and, therefore, the rise in the price of energy will only affect them if it is a long-term crisis.

 

Do the electricity companies benefit the rise in the price of energy?

Contrary to what it may seem, the rise in prices does not benefit the electricity distribution companies. This happens because already some months ago the electricity companies had sold 100% of their basic production – hydraulic, nuclear and renewable – for 2021 and over 75% of that for 2022, at prices substantially lower than those now reached on the daily market. And with these forward sales, they have been making contracts for fixed-price sales with customers in the free market. 

This means that electricity distributors cannot pass on current market prices to existing contracts. The only tariff that is affected by the price increase is the regulated tariff, the PVPC that is established by the Government.

 

What can customers do in the face of rising energy prices?

First of all, it is important to check your invoices carefully and compare them with previous ones. In this way, most consumers in the free market will find that these do not reflect the price rises that appear so often in the news headlines.

What customers with a regulated tariff can do is to try to consume electricity during off-peak hours, when the price is lower. They can also review and adjust the contracted power and adapt it to their needs or look for alternatives with a new contract in the free market.

Related Content

advise icon go to the advise Facebook icon go to Facebook Twitter icon go to Twitter Youtube icon go to Youtube Messenger icon go to Messenger Linkedin icon go to Linkedin Instagram icon go to Instagram Shared Link icon Go to the shared link Checkmark Success icon Checkmark Success down arrow icon down arrow Previous Go to previous Next Go to the next close icon close add icon add up arrow icon up arrow oblique arrow icon look obliquely Arrow down icon Arrow down search engine icon search search engine icon search share icon share filter icon filter email icon send mail email icon email phone icon phone fax icon fac print icon print play icon play user icon go to the user section error icon an error has occurred info icon information thumb up icon like thumb up icon like thumb down icon don't like thumb down icon don't like clock icon Clock Lamp icon Lamp List icon List Map icon Go to the map Phone icon Phone Emergency icon Emergency Pause icon Pause Play icon Play Logout icon Sign off Phone icon Phone
go back icon go back in navigation number 50 icon go to product Tempo Happy 50 Horas calendar icon go to product Tempo Happy Día companies icon go to the business segment gas icon go to gas product catalog rising sun icon go to Tempo Verde-Renewable Energy product home icon go to the household segment 24 hours icon go to One Luz product electricity icon go to Luz's product catalog electricity and gas icon go to the Luz + Gas product catalog moon icon go to product One night light monkey wrench icon go to breakdowns and repairs sun icon go to Tempo Solar product clock icon go to Tempo Happy products 2 hour clock icon go to Tempo Happy 2 Hours product 24 hours icon go to product One Luz number 50 icon go to product Tempo Happy 50 Hours Medium Voltage power line See product catalog with electricity consumption from € 36,000 to € 360,000 / year High Voltage power line See catalog of products with electricity consumption more than € 360,000 / year company icon go to the business segment calendar icon go to product Tempo Happy Day Property management firms icon go to the Property management firms DarkSite icon DarkSite icon light bulb icon See product catalog with electricity consumption less than € 6,000 / year electricity and gas icon go to the Electricity+ Gas Products catalog electricity icon go to the electrical products catalog email icon email contact fax icon fax contact Low Pressure gas icon see catalog of gas products with consumption of less than € 6,000 / year High Pressure gas icon see catalog of gas products with consumption from € 6,000 to € 240,000 / year Medium Pressure gas icon see catalog of gas products with consumption of more than € 240,000 / year gas icon go to gas product catalog Enel icon go to the enel website heater icon heater maintenance service heater maintenance icon go to maintenance service OKGas Heater home icon go to the household segment pressure cooker icon pressure cooker monkey wrench icon go to breakdowns and repairs Medium Voltage power line icon see catalog of electricity products with consumption from € 6,000 to € 36,000 / year moon icon go to product One Night Light sphere icon go to personal website phone icon telephone contact rising sun icon go to Tempo Verde-Renewable Energy product solar panel icon go to photovoltaic solar energy clock icon go to Tempo Happy products black handyman icon with thumb down selected the reaction "I don't like it" little hand icon with thumb down select the reaction "I don't like it" black hand icon with thumb up selected the "like" reaction little hand icon with thumb up select the "like" reaction
Añadir otro equipo eléctrico Lorem ipsum dolor sit amet, consectetur adipisicing elit. Eliminar equipo eléctrico Lorem ipsum dolor sit amet, consectetur adipisicing elit. Aspiradora Lorem ipsum dolor sit amet, consectetur adipisicing elit. Horno Lorem ipsum dolor sit amet, consectetur adipisicing elit. Lavadora Lorem ipsum dolor sit amet, consectetur adipisicing elit. Lavavajillas Lorem ipsum dolor sit amet, consectetur adipisicing elit. Microondas Lorem ipsum dolor sit amet, consectetur adipisicing elit. Plancha Lorem ipsum dolor sit amet, consectetur adipisicing elit. Punto de recarga vehículo eléctrico Lorem ipsum dolor sit amet, consectetur adipisicing elit. Radiador eléctrico Lorem ipsum dolor sit amet, consectetur adipisicing elit. Secadora Lorem ipsum dolor sit amet, consectetur adipisicing elit. Split Aire Acondicionado Lorem ipsum dolor sit amet, consectetur adipisicing elit. Termo Lorem ipsum dolor sit amet, consectetur adipisicing elit. Tostador Lorem ipsum dolor sit amet, consectetur adipisicing elit. Vitrocerámica Lorem ipsum dolor sit amet, consectetur adipisicing elit. Power edit Lorem ipsum dolor sit amet, consectetur adipisicing elit. Map marker Lorem ipsum dolor sit amet, consectetur adipisicing elit.