Electricity bill: 6 out of 10 free market offers are already more expensive than the regulated one
an electricity bill,
an electricity bill,Eduardo Parra (Europa Press)

The brutal shock of electricity prices in the last year has been anything but homogeneous. For months, those who have suffered the most have been, by far, those who had a regulated market rate (also known as PVPC), who have been left completely at the mercy of the many vicissitudes of the wholesale market. On the contrary, those who were in the free market (in which the conditions are negotiated, case by case, between the electricity company and the client), renewed their contract shortly before prices began to rise and have benefited from the reduction of taxes on electricity.

The tables, however, have already turned. Even before the limit on gas and coal comes into force this Wednesday -which seeks to ensure that the explosion in prices of both fuels contaminates the entire scale of electricity generation prices and which, as the Government promises, will reduce between 15% and 20% the bill of households covered by the regulated market—, almost two out of three rates offered today by electricity companies are more expensive than the market, according to the price comparator of the National Commission of Markets and Competition (CNMC ).

In the last month (from May 12 to June 12), a prototypical Spanish home —with a consumption of 279 kilowatt hours (KWh), the average according to Red Eléctrica de España (REE), and four kilowatts (kW ) of contracted power— paid 77 euros in the PVPC. Even though it is very high, that figure is 5.5 euros lower than what the same client would have paid with a newly minted free contract.

The gap is even greater in the case of renewals: the conditions offered by the electricity companies are usually better for the new clients to attract —the famous commercial hook— than for those who are already in their ranks. This difference is especially important in a market like the current one, in which an avalanche of renewals is taking place for calendar reasons: right now it is a year since the start of the price increase, so the last ones who signed an annual contract in still advantageous conditions they are suffering a substantial rise in their bills.

“Retailers have been incorporating the rise of recent months into their offers for some time,” explains Juan Antonio Martínez, a consultant for the ASE Group. “As consumers, the logical thing is to go to the open when wholesale prices are low, to protect yourself. And move to the PVPC now, when prices are high, but the expectation is that they will go down”, he considers while recalling that, in the long term, the regulated market is always cheaper “because the margins of the electricity companies are much lower ”.

He knows in depth all the sides of the coin.

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There are, however, some points to take into consideration in the CNMC price comparison. First, that practically all the tariffs of the large electricity companies (Iberdrola, Endesa, Natugy: those with the majority of clients) are in the medium or low price range, largely due to the offers for new clients. Those of the marketers, on the contrary, are usually in the high range. Before the explosion in prices, the dynamics were exactly the opposite, but in times of soaring prices, the giants in the sector are taking advantage of a great competitive advantage over the rest: they have both generation and distribution and marketing activities, and can offer your own energy at an advantageous price. That, against all odds and despite the reputational setback, has allowed them to further expand their dominance in the market.

The second point to take into account is that, as Ignacio Gistau, author of Burn the light: Guide to understand the price of electricity (Editorial Flash, 2022), the CNMC’s offers “are not necessarily the best, but rather the general ones, and in many cases the electricity companies end up improving them” in the negotiation process with the new client. The great value of the free market, he says, is that it allows clients to hedge against volatility: “Sometimes you will hedge at a higher price than it ends up being and sometimes you won’t, but what they offer you is a hedge. Free market offers go against next year’s futures market.” That, he underlines, will cause the cap on gas to lower both the PVPC and the free market, because those futures “are already going down.”

José Luis Sancha, professor of Energy Systems at Comillas Pontifical University, thinks something similar: “Now, with the cap on gas, the price of energy will begin to fall and free marketers should also lower their offers. Let’s hope the competition works.” That, he says, will offset last year’s flow from the free market to the regulated one: “Just as 1.25 million have switched from the free market to the regulated market in recent months, it is to be expected that now there will be a movement in reverse. But then it will stabilize, as the marketers lower their prices.”

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