In recent months and years, the price of electricity has experienced an upward trend, negatively impacting the vast majority of Spanish consumers and households.
Despite the fact that the government approved by decree-law a measure to reduce VAT from 21% to 10%, impacting households with contracted light powers equal to or less than 10kW, when the wholesale price of light is higher than 45 euros per MWh and customers with a social bonus, with a recognized situation of economic vulnerability.
The electricity VAT reduction measure is temporary, until December 31, 2021. Although it is to be expected that if the electricity price situation does not stabilize and continues with high prices, it is likely that the government will extend measures.
The price of electricity in the wholesale market closed the month of July 2021 with an average of 92.42 euros per megawatt-hour (MWh), being the most expensive month of July in history.
How Is The Price Of Electricity Calculated?
When it comes to understanding what determines the price of electricity today and how it is reflected in your monthly or quarterly bill, it is vitally important to understand the structure of your electricity bill and what costs you pay based on what concept.
Your invoice is made up of two parts: the regulated and the variable. The first is often recognized as a fixed term and it reflects costs that do not depend directly on the consumption of light but have a fixed cost either in euros per month or as a% of the total consumed. The price of the contracted light power, the taxes that affect light such as VAT or electricity tax, as well as other concepts such as aid for renewable energy stand out.
Secondly, we find the part of the variable term, which includes the cost of the energy consumed and receives this name because it varies from month to month according to the market price of electricity, as well as the consumption made.
Once these concepts are understood in your electricity bill, both fixed cost and variable cost. We must pay attention to the elements that make the price of electricity rise and the variables that affect when calculating the price of electricity:
- The relationship between supply and demand of light: the demand for light has been increasing in recent years. Both consumption by private households and by companies. Greater use of air conditioning devices in the summer months and heating in the winter months, which tend to have high energy consumption, mean that seasonal demand peaks are increasingly prolonged. From June to August and from November to February (we find 7 months of high consumption). If you think that heating or the use of elements that are gas does not impact the price of electricity, you have to read the next point.
- Price of gas: yes, as you read it, although a priori it may seem surprising, the price of gas has an impact on the price of electricity. During the electricity production process, plants often use coal and fossil fuels such as gas (except renewable energy plants). The price of gas has also had an upward trend, due to higher consumption by individuals and the rise in the price of gas in Europe. This last aspect directly impacts Spain, which tends to buy gas from countries such as France or Germany.
- Market prices for CO2 emissions: with the growing problem of climate change, CO2 emissions from power plants have been translated into an increase in taxes and costs of CO2 emission rights. The problem is that although this cost is paid by the power plants, they end up transferring it to the final consumers on the electricity bill.
What Is The Price Of Electricity Today?
You can find the price of electricity today updated daily directly in this article, to see what the price of electricity is today in Spain. The update takes place every 24 hours and the data source used is ESIOS (System Operator Information System) which is part of the Spanish Electricity Network (REE). Check below the price of electricity today in The Economist:
What Does The Price Of Electricity Depend On?
In addition to the elements mentioned above in the article, which directly impact the price of electricity today.
The price of electricity also depends on the structure of the fixed term and its weight in the total bill as well as the variable term.
The fixed-term in the past represented around 40% or 50% of the total bill. However, their weight has been reduced to levels of approximately 25%, giving rise on the other hand to the increase in the weight of the variable term that has reached levels around 75%.
The users who have been most impacted by changes in the price of electricity and its structure in the bill have been those of the regulated market, being consumers with the PVPC rate (Voluntary Price to Small Consumer).
Consumers who are part of the free market, a priori are not affected by these fluctuations and volatility in the bill, unless they have a rate with an indexed price or reference price, having a kWh price equal to the wholesale pool.
How Does The Price Of Electricity Vary Per Hour?
Just as demand impacts seasonal periods such as summer or winter (times of extreme heat and cold). During the day to day, there are hours in which there is greater demand for light and therefore its price is higher, than in “off-peak hours” in which energy consumption is lower.
The price of electricity today, hour by hour, varies depending on that demand and the different rates contracted with the electricity company.
It is common to find the concept of hourly discrimination, which represents a type of electricity tariff according to which there are three scheduled for the energy term and two for electrical power.
