"The latest measures approved by the Government will introduce rationality and prevent further damage to the Spanish electricity system"

We spoke with our CEO, José Bogas, about the price of electricity and the role of electricity companies, and in particular Endesa, in the price crisis we are experiencing.

The escalation of the price of energy that we are experiencing is very worrying for many families and companies. That is why we believe we should clearly explain its causes and possible solutions to contribute to giving some peace of mind and to understanding the real impact it has on our invoices.

With this in mind, we spoke with our CEO, José Bogas, to clarify all the information we are getting with regard to the price of electricity and the role of electricity companies, and in particular Endesa, in this price crisis.

 

What would you say to entrepreneurs and families who are viewing the escalating price of energy with great concern?

The first thing is that this uncertainty and worry is logical. That what is happening is the result of geopolitical tensions that are making the price of gas and other raw materials more expensive and that, as far as we are concerned, we have put all the possible solutions on the table.

I would add that they should remain calm, since all those who have previously signed fixed-price contracts with their suppliers are not being affected by the circumstances of this situation.

 

There are companies that are afraid their contract will be broken or that the increase in wholesale prices will be transferred to them. Is this possible?

Each contract with each client is different and there are very different situations. If a company has a significant part of its consumption exposed to the daily price, it will undoubtedly be having more problems. This is not the case for companies that have contracts at fixed prices.

We are looking at it case by case. What is clear is that we will look for specific solutions for each case, extending contract times and looking for formulas that guarantee the continuity of their activity.

In recent weeks we have continued to sign contracts with industries and large clients of all types and sectors, increasingly in the longer term.

 

Why is the price of energy rising?

The rise in the price is mainly due to the brutal increase in the price of gas and, to a lesser extent, in the price of CO2. So anything that does not involve attacking that problem will not be an effective or real solution.

We are confident that little by little the major problem, the rise in the price of gas, caused mainly for geopolitical reasons and which is affecting the whole of Europe, will be solved.

“The rise in the price is mainly due to the brutal increase in the price of gas and, to a lesser extent, in the price of CO2. So anything that does not involve attacking that problem will not be an effective or real solution ”.

– José Bogas, CEO of Endesa.

Who is being affected by this rise in prices?

When we talk about an increase in the electricity bill, we need to be precise. Most domestic customers and SMEs in Spain, there are more than 16 million customers of this type, have contracts in the free market that protect them totally or almost totally from wholesale prices. After a year, when each client's contract expires, the conditions are updated according to the criteria contained in each contract.

To the 10.5 million who have contracts with a regulated tariff, which are affected by the increases as a result of a single regulation in Europe that links the price of their electricity directly to developments in the wholesale price, we should remind them of two issues:

  • Firstly, that since June there has been a new regulation for tolls and charges depending on the hours of the day, which means that more efficient consumption habits need to be adopted to keep the bill under control.
  • Secondly, that to compare with 2020 is to compare with the year that the historical record for low prices was broken. In other words, we are comparing extreme years in the development of wholesale prices: The cheapest with the most expensive. Just as when comparing the figures for tourism we do this with 2019, the pre-pandemic year, we should now compare with years like 2018, 2015 and 2012, when the average bill was similar to the average for between January and August this year.

 

Do you think that the measures taken by the Government will contribute to mitigating the impact on people's bills?

Although things could have been done differently from the beginning, the Government has corrected and approved solutions that will help avoid the effect of the increase in the wholesale price on the pockets of citizens and also avoid further damage to the electricity system in Spain.

The additional measures approved by the Government in October introduced rationality, as well as increasing protection for vulnerable consumers, two areas of action that we value positively.

The demands for greater transparency included in the new decree laws are always positive and for our part we will continue to collaborate in the coming months in order to provide competitive prices for industry, SMEs and families

“The additional measures approved by the government in October introduced rationality, as well as increasing protection for vulnerable consumers”.

– José Bogas, CEO of Endesa.

Will the government's goal of paying a tariff like the one in 2018 be achieved?

With the latest measures taken by the Government, it will be possible for consumers in Spain to pay an average tariff similar to that of 2018. The challenge now is for everyone to do so, including those with a regulated tariff, linked to the wholesale market.

For the latter, it would be important to update the regulated tariff to protect the 10.5 million customers to which it applies from market volatility, as well as to develop other measures to protect other types of customers from the volatility of the wholesale market. It should be emphasised that the problems arising from the increase in wholesale prices mainly affects the customers exposed to the pool, including those who have contracted a regulated tariff.

 

In addition to this update to the regulated tariff that the entire electricity sector has been requesting for years, has Endesa proposed any other measures to contain the rise in prices?

We have always been willing to propose solutions. We have always been committed to dialogue and this will continue, because we know that we are an important part of the solution.

What have we proposed to the Government?

  • Firstly, to attack the key to the problem which is the rise in gas prices. How? With regulatory measures that enable the price of gas to be around 20 euros, which would drastically reduce the wholesale price.
  • Secondly, a change in the settlement of renewable energies that do charge the pool price (Recore, renewables, cogeneration and waste). A part of renewable energies (almost 80%) is regulated and falls within this Recore system. The market price is estimated every three years and a premium is added to ensure profitability. After three years, the premium is reviewed and adjusted for the future. At the moment these renewables are charging much more than expected, because they take their price from the daily market. This will be compensated by reducing the specific remuneration from 2023. If the settlement is changed so that the adjustment is made within each year, about 6,000 million euros could be recovered in advance, this corresponds to the next six months. 

 

What would you say to those who believe that Endesa is making a fortune out of this price increase?

I would simply ask them to look at the facts: The reality is that Endesa has reduced its profit margin in the generation and marketing of electricity by 15% in the first nine months of the year, so we are not making a fortune or doing well out of these skyrocketing prices.

As to whether we are making a fortune or not, I believe that making a profit is a symptom of the sustainability of the system and a guarantee for the future, in the electricity sector and in any sector. In our case, these profits are used to fund investments that have amounted to thousands of millions, and the return we get can be considered as reasonable.

 

So who benefits from the rise in the price of energy in the wholesale market?

Those who are benefiting from the price increases in raw materials such as oil, gas and others are the countries and operators that control the global extraction and distribution of these raw materials. Not those of us who are end users.

There are other agents who have benefited: Producers of renewable energies who are under a regulated scheme that guarantees them a certain profitability. That is why one of the measures we have proposed is to bring forward the payment period for the settlement of the extra income that these producers receive, as I explained before.

 

Energy poverty is a reality in Spain, so part of the measures adopted by the Government are aimed at helping the most vulnerable families. What is Endesa doing in this regard?

Our commitment to society will lead us to contribute approximately 90 million euros to finance the Social Bonus this year. We have also signed 127 agreements with institutions in Spain designed to assist thousands of vulnerable families and that no clients in that situation will have their energy supply cut off and they will be able to afford to pay their bills.

“We have signed 127 agreements with institutions in Spain designed to assist thousands of vulnerable families and so that no clients will have their electricity cut off”.

– José Bogas, CEO of Endesa.

There is a fear that is spreading throughout Europe: That there will be a major blackout this winter.

In my view, and with the experience and information we have, that fear has no foundation. Spain now has the highest level of gas reserves in its history, as the Government has recently pointed out. Our capacity for generating electricity more than doubles demand. So I do not foresee any anomalous situation in the coming months. Only the catastrophic confluence of numerous negative events could put the system in difficulty.

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