2024 regulated tariff reform: a new calculation method to dampen volatility. How it affects electricity prices from January 2024.
The regulated electricity tariff reform taking effect on 1 January 2024
The regulated electricity tariff is changing its calculation method to dampen the volatility of the spot market. Alongside the daily price, the new methodology will factor in monthly, quarterly and annual quoted prices. The aim is to shield consumers from the price instability seen since 2022, when prices surged on the back of the energy crisis and Russia's invasion of Ukraine.
This regulated tariff reform was one of Spain's commitments to the European Union in exchange for applying the "Iberian exception" — a temporary measure to counter electricity price rises driven by gas prices, by capping the cost of electricity generated from gas. It was due to be applied in early 2023, but the new calculation method has only now been set, taking effect on 1 January 2024.
It is worth recalling that 9 million households are currently on the regulated tariff, which accounts for 34% of domestic supply points.
How the regulated tariff worked until now
The regulated electricity tariff, or Voluntary Price for Small Consumers (PVPC), was introduced in 2014 and is applied by reference suppliers on the basis of three components: the cost of electricity, network access charges and system charges, and the cost of supply.
The cost of energy changes constantly: the regulated tariff is fully indexed to the daily electricity market, meaning it changes every hour of every day. The price varies with weather conditions, rising demand, hydrology and other factors. And because it applies to each unit consumed, what you pay depends on when you use it.
How the new tariff is calculated
To curb that volatility, the government has set out a new calculation system. Electricity will no longer depend solely on the daily quoted price — the main source of volatility. From 2024, the price will incorporate forward quotations from the previous half-year: monthly, quarterly and annual.
Forward values will be phased into the energy cost calculation: 25% in 2024, 40% in 2025 and 55% in 2026 of electricity production costs. Within those percentages, 10% corresponds to the monthly product, 36% to the quarterly and 54% to the annual.
More stable, but not always cheaper
The new methodology does not imply a fall or a rise in the bill — it implies greater stability. Exceptional situations with a direct impact on price, of the kind seen in recent years, will no longer feed straight through to the electricity bill. In bearish energy price scenarios, like the current one, the regulated tariff will come out higher. In bullish scenarios, it will come out cheaper.
Who can take the PVPC?
From 1 January 2024, the voluntary price for small consumers is available to supply point holders who are individuals or micro-enterprises with contracted capacity of 10 kW or less in each of the existing time bands.
The micro-enterprise criteria are those set out in Commission Regulation (EU) No 651/2014: businesses employing fewer than ten people with an annual turnover and annual balance sheet total not exceeding €2 million.
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