Could electricity be free if there were zero costs in the electricity market?

The wholesale electricity market is an hourly auction in which those generating electricity and the retailers participate and in which electricity prices are established for each of the 24 hours of the following day. There are many factors that have an influence on that price and there may be hours when that price is zero. But could we have an electric bill amounting to €0? Or have some hours when electricity is free?

Why has the price of electricity on the wholesale market become zero in Spain?

There are times of day when the electricity on the wholesale market becomes zero in Spain. This is for the time bands when the expected demand can be supplied entirely by renewable energy and there are a number of reasons for this:

• High supply of renewable energy: The variable cost for energy from renewable sources is lower than that for energy produced in combined cycle plants, which use gas and emit CO2, so its variable cost is related to these two factors. As a result of the development of photovoltaic energy in recent years, in the hours around the middle of the day there is an important contribution by photovoltaic energy, with a significant production of wind energy.
• Demand supplied by renewable energy: In times when the demand for electricity significantly lower (public holidays, days when there is less work activity, times of the year when neither air conditioning nor heating are required), and in hours when there is a very significant contribution by renewable energy (photovoltaic and wind), demand can be met entirely by renewable energy, so the price on the electricity market could be zero, so there would be "free energy".
  

For example, at the end of April 2023 there were hours when free electricity were recorded. At that time we usually do not use heating or air conditioning because temperatures are not yet low enough and it is not hot enough to need air conditioning. This results in a significant decrease in demand.

How does the zero price influence deregulated market and PVPC customers?

The regulated tariff (PVPC) is constructed taking into account the price that is established on the daily market for each hour of the day, so customers on the regulated market are subject to the volatility of the wholesale market. This means that they benefit when the market established a zero price, but they are also affected by external factors such as the impact that the price of natural gas has on the electricity market, as has happened as a result of the war in Ukraine and its impact on natural gas market prices.

As for customers who have a deregulated market tariff, it depends on the type of contract they have: If they have a fixed-price contract, they do not benefit from a decrease in price on the electricity market, but neither are they affected by the increases, so what they have is stability.

In those cases where the client has a free market contract indexed to the market, as is the case with some industrial clients, they do benefit from the decrease in price.

Do you know whether you are on the unregulated market or the regulated market? You can see the differences in this article. You can tell just by looking at the header of your invoice.

If the price on the market is zero euros, can the electricity bill be free?

For clients who comply with the conditions we described above (clients on the regulated market and clients on the deregulated market with a market-indexed contract) they will see reductions in their bill but it will not reach zero.

In the electricity bill there are a series of items that continue to apply regardless of the market price. These include tolls and charges, rental of metering equipment, taxes, etc.

Tolls pay for transport and distribution services and are established annually by the Spanish Markets and Competition Commission (CNMC in Spanish).

Whilst the charges are to pay the premiums for renewable energies (approximately 6,000 million euros/year), annuities for the tariff deficit of past years (about 2,300 million euros in 2023), the extra cost of non-mainland generation (the islands, Ceuta and Melilla) that is financed by the electricity tariff and by the State Budget. The charges are established annually by the Ministry of Ecological Transition and the Demographic Challenge.

Understanding the electricity markets will give you the freedom to consciously choose the tariff that best suits your needs and priorities.