After eight months of being released to public information and just over a month before the next general elections, the Council of Ministers has approved this Tuesday the royal decree for the reform of the regulated rate electrical (known as Voluntary Price for Small Businesses, PVPC) that will reach households and micro-SMEs from January 1, 2024.
Will the new rate be cheaper?
The reform has been designed with the main objective of protecting consumers from the excessive volatility caused by the current model, entirely linked to the daily wholesale market of electricity. In principle, it is impossible to predict if the rate will be cheaper or more expensive than the current one, explain sources from the Ministry of Ecological Transition. There will be times when it may be cheaper than the current one and others when it may not. The only thing that these sources dare to assure is that the new rate it will be more stable and that the consumers covered by it (now there are about 9 million) will be more protected from occasional fluctuations in prices, such as those produced, in its day, by the Philomena storm or by the outbreak of the war in Ukraine. Thus, according to both the CNMC in its report and the Government in the economic report of the decree, in a scenario of price spikes like that of recent months, this tariff would smooth out the increases, but in a stable scenario –as had been been common before the war–could be an upside.
The new rate will enter into force on January 1, 2024 and will exclude branches of large companies and public offices
Why will it be more stable?
The new calculation methodology of the PVPC implies a partial decoupling of the regulated tariff with respect to the daily energy markets. As of January 1, 2024, the setting of the rate will take into account references of electricity futures markets in order to provide more stability to the final bill. This incorporation of futures will be gradual: it will represent 25% in 2024; 40% in 2025 and 55% in 2026. The future market price references, in turn, will be made up of a basket of term products with different time horizons: 10% would correspond to the monthly product; 36%, to the quarterly product and 54% to the annual product. So that the traders can prepare for the entry into force of the new rate, they will now be able to make contracts in the futures market linked to the new PVPC as of July 1. In addition, the marketers may incorporate a risk premium against possible contingencies whose cost will be transferred to the final consumer.
Who will be eligible for the new regulated rate?
Currently there are about 9 million consumers households, companies and institutions covered by the regulated rate. Now, the only requirement is that they have contracted a power of less than 10 kilowatts. The reform adds another additional requirement: only final consumers and micropymes (of up to 10 workers, with a turnover of less than 2 million and a balance that does not reach that amount). This limitation will leave out, for example, branches of larger companies (as could be the case of financial entities, for example); also leaves out public administration buildings. In Ecological Transition they explain that they have not made an estimate of how many of the current 9 million consumers covered by the regulated rate will have to switch to the free market as of next January 1.
Will the regulated rate contract have to be renewed?
No. In principle, consumers benefiting from the current regulated tariff will not have to do anything to remain in it as of next January 1. The change will be automatic. The companies that are excluded from the tariff as of 2024 (because they are not micro-SMEs) will have to switch to the free market. If they do not, they will have to accept a surcharge of 20% on the regulated rate.
Are all marketers required to offer a regulated rate?
No. Only calls are required to offer it to their customers. Reference marketers identified by the National Commission for Markets and Competition (CNMC). At the moment there are eight retailers, linked to the Iberdrola, Endesa, Naturgy, EDP, Repsol and CHC groups. The regulated tariff is something that, in principle, is not the preferred option for energy companies, since the marketing margin is set by the administration. The energy companies prefer to offer their clients the free market. However, the Government considers that the regulated tariff option is useful for a broad segment of consumers with less risk aversion. In addition, consumers with a social bonus must have contracted the regulated rate.
Will the price of electricity continue to be different for each hour of the day?
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Yeah, that doesn’t change. The new model preserves the hourly price signal by maintaining the differential resulting from the daily market matching, in order to promote efficient consumption patterns to take advantage of the cheapest hours, in which renewable sources of generation have a greater presence.
The reform of the regulated tariff buries the model created in 2014 by a PP government, which was indexed to the daily prices of Iberian Electricity Market (Mibel). The reform approved now obeys to a commitment of the Government with the European Commission when it received the go-ahead of the so-called ‘Iberian exception’ for Spain and Portugal that allowed putting a cap on the price of gas in electricity generation. Thus, the new tariff had to be ready before the ‘Iberian exception’ expires, on December 31.