What is behind the Electricity Price?

If we look at the power bill components on the internet, many articles will pop up describing Capacity cost, Metering Rent and other concepts like the Electricity Tax. However, there will be few articles focused on what is inside the Energy Term.

The Energy Term can be a fixed price or not, depending on the contract a client has with the supplier, but it will eventually appear as one price for your tariff on the bill. In reality the energy term includes three groups.

If you request a bid indexed to spot market price rather than a fixed price you will meet the costs above according to the following composition:

Taxes (T)

• Municipal Rate:  special rate of 1.5% for the private use of public infrastructure.
• Electrical tax:  4.864%, that becomes 5.11270% based on the VAT law.

Regulated costs (PC, TOS, TOM and Atre)

• PC (capacity payments): aims to give an economic signal to ensure the development of power generation in the power system.
• TOS and TOM: Market Operator (OMIE) and System (REE) service cost. It is the same for all consumers.
• Atre (energy net tariff):  amount distribution companies charges to supplier who transfer the cost to the final consumer.

Manageable costs (PMO, RRT + POS, CD, CI, Cperd and CG)

Each cost changes hourly or on a daily basis and therefore supplier normally fix them, adding a premium.

• PMO (organized market price):  price of wholesale power market. It can be a daily market price or a forward market. The daily market price is defined by OMI-Polo Spanish SA (OMIE) and the forward market price is defined in MIBEL electricity derivatives market (OMIP). Suppliers usually consider the OMIP market to offer a fixed price.
• RRTT + Pos (Restrictions and Services Operations): costs of adjustment services system (SSAA) REE to guarantee the generation-demand balance in real time, since energy is only OMIE married in a forecast that differs from the reality.
• CD (costs detours): it penalizes a supplier on how much its real consumption differed regarding its earlier purchase on OMIE.
• CI (interruptible service costs): is a cost to ensure the power supply system. If on a particular day there is an extraordinary high demand not foreseen, certain industries are asked to. This cost is determined on annual interruptible auction.
• Cperd (loss coefficients): While the energy is transported, some of it gets loss at the lines and electrical installations. Utilities still need to be paid for the whole which is possible through these coefficients cost published by REE as indicated willingness in RD 216/2014.
• CG (management cost): is the supplier fee for managing the power purchase on the wholesale market as well as the regulated cost and tax systems cost.

As you can see, in the energy term of a fixed price there are many components that supplier convert from Volatile to Constant, an action that involves a risk. If what a consumer wants is security (fixed price), the supplier will assume the risk in exchange for a fee. If you prefer to actively manage your energy cost of energy by following the market, then there are many other possibilities to look into. Then, the question one must make is, How many risks I would take and at what price?

Marta Merodio | Energy Consultant