The new electricity rates: reason for being and recommendations for greater savings

Álvaro Monfort from XAD explains the reasons behind the recent hikes in electricity charges and how to make savings.

Thursday 10th June 2021 – ÁLVARO MONFORT with Mike Smith

The increase in the electricity bill has not been accepted quietly. In full economic crisis derived from the months of confinement, restrictions and a change in citizens’ habits, the increase seems to have no place, but it responds to the rise in the price of kWh.

The Consumers and Users Organisation (OCU) has explained that the the electricity bill includes all the costs necessary for the electricity to reach each home, not just the actual consumption. Therefore, part of the price of each kWh are included the access tariffs (the charges for the distribution of the electricity whose cost is fixed and the charges for the electrical system that derive from other costs such as the compensation of the accumulated deficit to cover these expenses), production costs (price charged by energy-producing companies which rises or falls depending on what type of plant is being used), marketing margin (charged by the distributor for billing) and the tax on electricity including VAT. The contracted power also carries costs that attend to these factors and the electricity generation costs depend on the source that is used to produce it. (In Spain, the main sources are nuclear, wind, combined, hydraulic, cogeneration and solar).

The change that has caused the increase in the bill has occured because the transport and distribution access rates have changed. The National Markets and Competition Commission (in charge of setting charges) proposed “optimizing the electricity grid” and penalizing excessive consumption during peak hours. The price of power has also changed, which now has two different costs depending on whether it is for peak, flat or off-peak hours. This has to be contracted so that the difference between one or the other applies.

The pandemic seems to be the cause of this increase that has been taking place, gradually, since January of this year. In 2020, the price of electricity was very low compared to previous years. The hardest months of the health crisis led to a reduction in energy demand and a drop in prices. Now, energy demand has increased compared to 2019 and, in order to flatten electricity demand and avoid overcapacity, it has been decided to “force” consumption to take place during peak hours and that saturation the network is lower.

Who is affected by the new rate?

All domestic consumers with contracted power equal to or less than 15 kWh. Also, if they have a contract with PVPC, the company must apply the new prices established for the terms of power and energy with the new time sections (peak, flat rate and off-peak). In the case of being part of the free market, the marketer must adapt the contract price to incorporate the difference in regulated costs.

When do you pay less?

The off-peak period is the most economical. It includes the night hours from 00:00 to 08:00 Monday to Friday and all day on Saturdays, Sundays and national holidays (but not regional ones). During these hours, the price of energy is 95% lower than at peak times.

The flat-rate period is the most similar to that of normal consumption. It runs from 08:00 to 10:00, from 14:00 to 18:00 and then from 22:00 to midnight, Monday to Friday. In this case, the price of energy is 69% less than that of peak hours.

The peak period is the most expensive and runs from 10:00 to 14:00 and from 18:00 to 22:00 from Monday to Friday.

Each kWh consumed in peak and flat-rate hours costs 30.67 euros per year plus taxes and the cost of the contracted for off-peak hours is 1.42 euros per year. For example, the use of the ceramic hob (an appliance that is used, especially in peak hours) would cost 5 euros per year if it is used during off-peak hours, 50 euros during flat-rate and 100 euros during peak-rate hours.

Why do I have two contracted power loads?

It is pointless in making the effort to try to use more electricity in off-peak hours if you do not have a specific power load contracted for this time, which is 95% less than that of peak-rate hours.

Consumers tend to be contracted with more power load than necessary, a fact that makes the invoice more expensive because it is not usual to reach that maximum or have most appliances running at the same time. From now on, taking into account that there are certain hours when you pay less, you can contract for a different power load for both peak and off-peak hours. The saving would be automatic. However, when contracting the new power for the off-peak period, it must be borne in mind that this will be the one that will be applied on weekends. We must also consider that there are people who require more power in the off-peak time and less at the peak. In this case, you can contract a lower power load in the most expensive hours and a higher power load in the cheapest hours.

Recommendations for savings with the new billing system

  • Find out about the energy consumption of electrical appliances to avoid their use during the hours of greatest cost. For example, the iron is one of the appliances that uses a lot of energy whose use is easily adaptable.
  • Use LED or low-consumption lighting.
  • Turn off equipment that goes into ‘sleep-mode’ (such as computers) and disconnect the charger from the mobile phone when the charge is complete and do not charge it until it is absolutely necessary. Disconnect appliances that are not being used or are not used daily.
  • Avoid simultaneous use of appliances that consume a lot of energy (such as a washing machine, hob or iron) as this will affect the contracted power load.
  • Take advantage of daylight hours and turn on the lights only when necessary.

The Institute for the Diversification and Energy Saving has made other suggestions in an interactive image according to each one of the rooms of the home in THIS LINK (in Spanish).