The rise in electricity prices began to be noticeable in the second half of 2021, but has intensified as a result of the war in Ukraine. In this scenario, many consumers have seen their bills grow while a debate has been opened:what pays more, the fixed market or the regulated one?
While some customers decided to stay in the regulated rate (either PVPC, controlled by the State), others saw the free market as more competitive, where it is the companies that set the prices. In 2021, more than five million trader changes in the electricity market. From them, more than 90% towards the free market.
Seeing this horizon, households ask themselves several questions. What electricity rate compensates more? How to know which one they have contracted? Is it possible to change it immediately? In this scenario, experts advise customers to assess their own situation, looking at the fine print on invoices and reviewing their contracts.
Free market or regulated? Their main differences
The client can choose between two options: the free market or the regulated. In the first, the companies set a price through various tariffs and the consumer can choose which one to take advantage of according to their needs. In this way, a price fixed for the future to avoid the volatility of the wholesale market, and the user you will know in advance how much you are going to pay per kilowatt throughout the period you have contracted. You can also opt for other discounts, green energy and additional maintenance services.
However, experts advise customers to look at the small letter and conditions, especially with regard to the Price Update, since “when they talk to you about offers, they all have a validity time”, Fernando Valverde, responsible for renewable energies at Menta Energía, explains to RTVE.es.
On the other hand, in the regulated market the price varies every day depending on supply and demand and is influenced by the wholesale market fluctuations. This rate is based on the Voluntary Price for the Small Consumer (PVPC) regulated by the Ministry of Industry, Commerce and Tourism. This body does not set the price, what it does is “regulate how to calculate it depending on what happens in the wholesale market”, in addition to controlling the profits of the companies, Valverde clarifies. In short, the State establishes rules to control the effects that the market may have on the prices of this rate and, therefore, , on the consumer’s bill.
Contrary to the free market, only those households that have less than 10 kWh of poweraccording to RTVE.es Patricia Suárez, president of the Association of financial users (Asufin).
As a general conclusion, Valverde criticizes the actions of the companies. “Large companies offer the regulated price because the State forces them“, he points out, emphasizing that this system can be implemented by almost all electricity companies, including small ones, but “nobody wants to offer it” because state regulation does not give room for a great benefit.
How to know if you have contracted the regulated rate
By default, all customers have contracted the regulated rate, unless they have signed an express agreement with the company stating that they have a free market rate.
However, the customer can consult it by looking at one of their receipts, in the section “contract data“. Next to the holder’s name and address, below there is a section called “type of contract“where will it be reflected”PVPC” Y “regulated market“. In addition, if a social bonus is available, it is also specified. Below are the tolls and the contracted power.
In case of not finding these mentioned data, the contract belongs to the free market.
Regulated rate: how the price is set in the wholesale market
In the first place, Valverde explains that the more electricity demanded, the more its price rises in the wholesale market, which is what influences the regulated market. In addition, it also affects the use of fossil fuels, specifically the natural gas. Therefore, it ensures that when the limit of €40/MWh to the gas is a reality, lower regulated rates and also the electricity bill, as the Minister for the Ecological Transition, Teresa Ribera, has defended on numerous occasions.
There are numerous factors that influence when establishing the price of electricity, but everything is based on the balance between offer Y demand. “The last point of intersection between supply and demand is the one that determines the price of electricity, both for generation and for purchase,” explains Valverde. In other words, the price is set at the time the demand is covered by supply, regardless of the value reached, when there is no surplus left on either side of the balance. In addition, the expert stresses that this marginal market “is cheap and works with forecasts”, so that purchases are made in the future.
Along these lines, Suárez clarifies that this system, similar to the stock market, can harm households if it gets out of control: “The problem is that the market operator (OMIE) works in a similar to bag: It has sessions every day, where the price of energy is negotiated. And these fluctuations end up impacting the consumer’s bill.”
With the cap on gas “the regulated rate could drop between 20% and 40%”
Although the price of electricity had already skyrocketed at the end of 2021, this has intensified with the development of the war in Ukraine. In a scenario of constant increases, citizens have had to face prices that in March were 334% more expensive than in the same month of 2021, making it the month with the most expensive birth in history.
For this reason, consumers are focused on the gas price cap of 40 euros/MWh agreed by Spain, Portugal and the European Commission on April 26 with the aim of also lowering the price of the light and alleviate the economy of the most vulnerable families. Despite the fact that Brussels has asked both countries for more details to give the green light to the plan, when it is approved it could go down to about 130 euros/MWh the average price of electricity, according to Valverde, a figure that Facua raised to 140 euros/MWh.
But this does not mean that the invoice is reduced in the same proportion because, as he warns, there are other added costs that affect the receipt. Still, he ensures that the regulated rate “it will drop from 20% to 40%“, depending on the consumption of each household. In the case of the free market, it will depend on the decision of each marketer, although the expert foresees that they can freeze their rates or even upload them.
So which rate pays off more?
Each case is different, but the important thing is that the consumer has an active posture. In the case of families with a regulated rate, recommends continuing in this mode and monitoring what happens to the gas limit and how it can affect your bill. On the other hand, some clients of the free market it may compensate them to keep their contract because some “are paying considerably less” because they signed a contract at the end of 2021 with prices that are currently below the regulated one.
However, when the cap on gas becomes a reality, they will have to study whether the resulting price is much lower than the one they have contracted. If so, the switch to the regulated market would be justified.
In the case of wanting change contract or companythe regulated rate customer is not subject to any permanence, according to Suarez. In the free market this does exist, although it should not encounter major obstacles because, at the housing level, “there are very few companies that continue to apply a permanent contract“, as Borja Osta, Deputy Director of Selectra, explains to Canal 24 Horas.
However, the first step is to find out if there are more profitable options, and for this Valverde recommends reading the QR code located at the end of the bill, in the upper right corner, and which will take the consumer to a CNMC rate comparator where you can see if there are better offers for your address.
In parallel, for those who are not familiar with this technology, he suggests that they look at five key facts on the receipt to then follow up and try to find better and more appropriate options for their energy needs.
- Hired potency.
- Equipment rental.
- Additional services, in the case of being in the free market.
George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.