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New Compulsory Three-period Electricity Tariffs in Spain

by Chris Merveille

 

The electricity tariff structure was due to change in Spain on April 1st 2021. However, in an end-of-february decision, the market regulator decided to postpone the measure until the 1st of June. From that moment, all household consumers will automatically move to a system with three tariff periods. Will household electricity bills go up? Will consumers adapt their behaviour accordingly?

 

Currently having two or three tariff periods is optional for Spanish households and most people have a single tariff all-day long everyday. The new periods will not coincide with the old ones as e.g. the entire weekend will now be the "valley" tariff period with lower priced electricity. The exact cost structure has not been fixed yet by the market regulator, so there is still some speculation as to what the final prices for the consumer will be in each period, and how these will affect the majority of consumers. What is clear is that the price of energy consumed will go up for almost all households. Only those customers who could have profited from a 2- or 3-period tariff but didn't take advantage, because they were unaware or uninterested, might possibly pay somewhat less, but those who had already moved to a 2- or 3-period tariff will likely see price hikes in all periods. 

 

Spanish electricity bills do not only contain consumption charges (€/kWh), but also capacity charges (€/kW): each consumer pays to have access to the peak power that she has contracted. These capacity charges have traditionally been ill-adjusted and very high: for many consumers the fixed amounts paid for capacity outweigh the actual monthly cost of electricity consumed. This has sparked criticism that most people are paying too much just for accessing an essential service and that there is insufficient price incentive to reduce actual energy consumption.

Under the new tariff structure, there will be two periods for capacity charges (see figure 2) instead of the current all-day everyday period. In addition, separate peak-power levels can be contracted for each period. More importantly, prices for capacity access will be considerably reduced. In particular during valley hours, the capacity tariff is expected to be only about 10% of the current single-period tariff. Households are therefore likely to increase the capacity contracted for the valley period.

It will be interesting to see whether and how consumers change their behaviour as a result of these interventions, which is ultimately the objective of this new pricing structure. Are they willing to shift part of their load from peak to valley hours, mainly midnight to early morning and during weekends? Are they even able to do so? Will they reduce their overall energy consumption as a result of the higher consumption prices, or will rebound effects occur during valley hours? Will pay-back periods for self-consumption installations be significantly reduced? Will it accelerate the market for electrical products that provide flexibility (storage, heat-pumps)? And when all is said in done, will most households pay higher or lower average electricity bills? A heated discussion is ongoing in the specialised media.


For all the above reasons, this market intervention by the Spanish regulator will form an interesting case study for WHY. Researchers from the University of Deusto and citizen energy cooperative GoiEner are designing a process, based on the analysis of anonymised consumer data and the extraction of patterns from present and future household load profiles, that will allow us to gain the most knowledge for the causal model. Maybe we can even take it a step further, and provide our own little nudge. We will of course report on our methods and findings in future editions of this newsletter.