The Spot prices spiked last January, surpassing the 100 €/MWh due to several negative factors such as low periods of rain, lack of wind and the ongoing nuclear crisis in France. Curious are the reactions to this rise from the two countries of the Iberian Peninsula, which share the same Market, the MIBEL.

In Spain a lot of news were released complaining about the impact of this increase in the domestic consumer and demanding answers from the government, forcing the Energy Minister, Álvaro Nadal, to (try to) explain this skyrocket prices. Meanwhile in Portugal, the sparse news about electricity focused on the 1.2% rise in the domestic bill due to the update of the Portuguese Tariff System, which is reviewed yearly, stating that the Energy minister requested ERSE to investigate the reasons of the rise of the retail price of electricity.

So, on one side we have the Spanish domestic consumers worrying about paying 20% more than what they paid for electricity in January’16, while in Portugal people are complaining about the rise of 1.2% versus last year. Something is definitely wrong and the answer seems to rely on one point: The tariff method that each country applies to the domestic consumers which aren’t in the free market.

Spain and their PVPC

In April 1st of 2014 the regulated tariff known as the “Tarifa de Último Recurso” (TUR) was replaced by the “Precio Voluntario para el Pequeño Consumidor” (PVPC), aimed at domestic consumers outside of the free market with an installed capacity under 10 KW (12.5 kVA). The price of this new tariff is defined by a daily market, called OMIE, with the consumer fully exposed to the ups and downs of the retail price of electricity.

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Spot prices evolution in Spain. Source: M·Tech

Portugal and their TVCF

With the transition into the Free Electricity Market, Portugal set an original limit to complete the transition of all the consumers to this market by December 31st of 2017, so from 2013, the tariff for all end consumers (“Tarifa de Venda ao Cliente Final”, from now on TVCF) passed to a transition tariff totally defined and regulated by ERSE, the entity responsible by the regulation of the energy markets in Portugal. This TVCF is reviewed on a yearly basis and is an additive tariff, where all the concepts are regulated and defined by ERSE. By concepts, I mean that the final price is a sum of the tariffs responsible for: the retail price; transport; distribution; global use of the system and also commercial costs. This tariff is also incremental, which means that the final price rises every year in order to “encourage” consumers to pass to the free market voluntarily, as they look for cheaper prices.

The impact of both methods

Now that we know the difference between the regulated tariffs of each country, it’s easy to understand the different reactions of both. On one side, we have more than 1 million domestic consumers worried about the 20% increase in their bill from January 2016 to January 2017 and worrying even more about the rest of the year. On the other, we have Portuguese consumers enveloped in a regulated market (currently 1.42 million out of 6 million consumers) paying the same €/MWh every month of 2017, regardless of the energy’s wholesale price, and worrying about an increase of 1.2% in their bill.

Comparing the two energy bills for January, I was actually expecting a different outcome of what I obtained.

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Energy bill cost evolution for January for PVPC and TVCF. Source ERSE & Periodico Energía

The outcome presented in the Figure 2 shows us another reason to explain the absence of complains from Portuguese consumers and media. Despite the record high prices experienced in January, especially comparing with the Spot values of 2016 (35 €/MWh less), the energy bill of the domestic consumer is increasing year-on-year, no matter the retail price of the market, and totally independent of the evolution of the energy mix in Portugal in a greener way, and by green, I mean cheaper prices.

It is quite interesting how two countries where the wholesale Spot and Future prices of electricity are usually the same can have such a distinct way of dealing with the domestic consumers outside of the free market. The Spanish method actually allows more transparency, since the price reflects the market reality and forces the consumer to be more aware and alert about the changes in the energy market. Nevertheless, the Portuguese method cannot be criticized since it aims at ending the regulated market, by stimulating the equality of opportunities to all the energy consumers in the country.

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SPOT prices evolution – Portugal. Source: M·Tech

According to the evolution of Spot prices from the past 3 years and the current projection for 2017 (Figure 3), Portuguese domestic consumers of the regulated market have been paying much more of what their electricity really cost and, apparently, the period of extinction of these regulated tariff, expected to end by the end of 2017, will be extended until the end of 2020.

January 2017 will be a mark in the history of the Iberian Electricity Market. What happened should be analysed in detail and all consumers should be well informed about the impact of retail prices. Regarding Spanish consumers, knowing the causes of what caused this rise can relax them, by understanding that, part of it (at least) was related to punctual situations along with bad climatology but Portuguese consumers, should pay more attention or be more informed on what they are really paying for their energy, accelerating the transition for a unique free market in the Iberian Peninsula.

Jorge Seabra | Energy Consultant

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