Our tariff deficit can be summarized as the debt we (the consumers) inquired witrh the electric system. Specifically it is the difference between the costs of the system and the regulated income generated.

When was it created?

In 2000, the government ruling back then established a decree through which the electric energy costs could not rise above 2% yearly for the final consumer (something that was paramount to avoid a rising inflation, in a period of integration with the Euro). Since that decree, all increment above 2% should be accrued under the concept of “tariff deficit”, which is in turn a debt with the electric suppliers (UNESA) to be paid in the long run. Such deficit is distributed this way: Endesa (44%), Iberdrola (35%), Gas Natural (13%), EDP (6%) and in some cases such as Viesgo and Elcogás, a little above 1% each.

What caused it?

In 2005 the yearly deficit started to become significant as the electricity generation costs raised, but this increase in price was not applied to the end consumer. In a time of crisis, all kinds of unpopular measures would not have been welcomed. Hence, the next regulations were not enough to slow the debt, growing every year.

So, which was an exception became the rule, and turned into something worse after the consequences of subsidizing the renewables. That did nothing but feed the ever growing tariff deficit.

However, renewables cannot be seen as the direct cause of the deficit. Even though they represent a significant cost (7.000 million euros), they must also be considered as an investment for the future  and an important sector among the top of the employment creators. There are other subsidizes that aggravated such debt:

  • Transition costs to the competence: 10.000 M€
  • Nuclear moratorium: 4.000 M€
  • Subsidize for coal generation: 400 M€
  • Interruptibility payment: 700 M€
  • Debt for wronged billing to users: 3.600 M€
  • Over 27 pending lawsuits and compensations for other trials related to arbitrage with renewables: 7.000 M€

Later on, in 2011 they created a “Fondo de Titulación”, known as FADE. The organization emitted financial instruments to place the debt in third parties. The amount of payment rights that FADE was tied with other companies amounted 18.000 M€. It was also established in a Royal Decree that, the remaining amounts  of payment rights for the deficit that were still to be complied, should be trespassed  to the mentioned above “Fondo de Titulación”, releasing the electric companies of this burden.

Source: CNMC, Energy evolution Déficit/ Surplus

From a deficit to a surplus:

In 2013, the Law of the electric sector was established, having as a goal to correct the imbalances between income and costs of the last decade. That way, in 2015 the yearly balance turned positive as shown in the chart above.

Nevertheless, the non-existence of a yearly deficit does not mean there is no accrued debt, as the actual estimates are of 23.070 M€ deficit.

The Ministry of Industry required the CNMC a report on the amount of debt  to analyze how they will amortize it. There are currently 4 categories of payment rights:

  • Deficit of 2005
  • Deficit ex ante
  • FADE (Fondo de Titulación del Déficit Eléctrico)
  • Deficit of 2013.

This year’s share amounts to 2.850 M€, a figure that dwindles slowly, so that even in 2024  there will be 2.357 M€ paid, and in 2025 2.362 M€ according to the report.

Therefore, we would need around 11 years to amortize the pending amount and the interests, that reach close to 1.000 M€ per year.

 

Is the electric consumer of the future going to pay this debt that comes from past politics?

Up until now, every solution to the tariff deficit has been no other thing but a patch. Nowadays, the deficit is a structural element of the electric system that constrains the whole energetic policy. However, it has not yet been performed an structural reform of the electric sector In depth, that allows the authorities to reach the causes of that tariff deficit  and define transparently the real costs of the electricity production, so we can all trust in that information.

The way the payments for the deficit are designed, (moving the debt to the long term), supposes efficiency problems and barriers to the commercialization activity development as they have to sell below its costs. They also generate a liability that prevents important investments to be implemented on new technologies, erasing all incentives to efficiency.

To start solving the issues of our electric system some measures should be implemented, such as diminishing the energetic dependence, to constrain and make disappear the tariff deficit, increase competitivity, boost the national industry, employment creation, avoid the energetic poverty and promote the always forgotten self-consumption. For all this to happen, it takes a Government that is committed with energy efficiency, a real reform of the electric market and boost the renewable energy sources. We lack measures that inspire trust and that can end up with the incongruence of the reality of our current energy system.

 

Sonia Díaz | Energy Consultant

 

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