Reform of the regulated electricity tariff, which will come into effect on January 1, 2024

The regulated electricity tariff is changing its methodology in order to cushion the volatility of the spot market, the real-time market. The calculation methodology establishes that, in addition to taking into account the daily price, monthly, quarterly, and annual prices will also be considered. The objective of this new tariff is to protect consumers from the price instability that has been recorded since 2022, when prices skyrocketed due to the energy crisis and the Russian invasion of Ukraine.

This regulated electricity tariff reform was one of the commitments made to the European Union to apply the "Iberian exception," a temporary measure to combat the rise in electricity prices due to the rise in gas prices, which consists of limiting the cost of electricity generated from gas. Although it was supposed to be implemented in early 2023, it is only now that the new calculation method has been established, with implementation scheduled for January 1, 2024.

It is worth remembering that 9 million households are currently covered by the regulated tariff, which accounts for 34% of domestic supplies.

What was the regulated electricity rate like until now?

The regulated electricity tariff, or Voluntary Price for Small Consumers (PVPC), was introduced in 2014 and is applied by the reference suppliers based on three concepts: the cost of electricity, grid access tolls, system charges, and the cost of marketing.

The cost of energy changes The regulated electricity tariff or PVPC is fully indexed to the daily electricity market, meaning that it changes every hour of every day. The price of electricity varies depending on several factors, such as weather conditions, increased demand, hydrology, etc. Furthermore, as it applies to each consumption, the price at the time of consumption depends on when you consume.

How is the new regulated electricity tariff calculated?

To avoid this volatility, the government has established a new calculation system. With the new system, electricity will no longer be subject only to the daily electricity price, which is mainly responsible for price volatility. From 2024 onwards, the price composition will include quotes of future values of the previous semester: monthly, quarterly and annual.

The implementation of future values in the calculation of the energy value will be done progressively: in 2024, they will represent 25%, in 2025 40% and in 2026 55% of the electric energy production costs. Of these percentages, 10% will correspond to the monthly product, 36% quarterly and 54% annually.

This price will be more stable but not always more economical.

This new calculation methodology does not necessarily imply a decrease or increase in the bill, but it does mean greater stability. Exceptional situations that have a direct impact on prices, such as those that have occurred in recent years, will not be directly reflected in electricity bills. Bearish energy price scenarios, such as the one we are currently experiencing, will mean that the regulated tariff price will be higher. Bullish scenarios will mean that the regulated electricity tariff will be cheaper.

Who is eligible for the PVPC?

As of January 1, 2024, holders of supply points who are individuals or micro-enterprises with a power less than or equal to 10 kW in each of the existing hourly periods will be eligible for the voluntary prices for small consumers.

The microenterprise requirements are those set forth in EU Commission Regulation No. 651/2014. Microenterprises are those companies that employ less than ten people and have an annual turnover with an annual balance sheet total not exceeding €2 M.