Electricity bills are set to rise for all consumers in the coming months and some of them are already feeling the rise in spending as changes are made to all contracts signed or renewed after April 26. Electricity supply contracts generally have an annual term and are renewed for equal periods, with the possibility of price changes at the time of renewal.
The legislation stipulates that all contracts concluded or renewed after April 26 are subject to an additional charge, which must be repeated on all invoices until May 2023. What the consumer does not know, nor can he calculate, is the value of this extra term, which will vary depending on the operator passing on the costs plus the new prices for the production of electricity required for that consumption.
Since the market daily adjusts the cost of electricity production, each consumer will have to pay a different additional installment, depending on the date of issue of its invoice and the counting period to which it relates. The method of calculation is unknown to consumers and can vary from operator to operator, leaving citizens blind, without being able to confirm the legitimacy of the amounts charged to them in an exceptional way.
Why do we have to pay an extra installment?
Charging the extra part of the electricity bill is the visible part of the so-called “Iberian brake”, created to control the rising costs of electricity production. Yet this mechanism is more than a brake, in fact a “damper”, because it does not completely prevent the price increase, it only prevents it from being so sharp.
The creation of this mechanism became law in the second quarter and was the inevitable result of a dramatic scenario involving two of the main energy sources for electrical production: water and natural gas. On the one hand, the available water in dams is decreasing due to extreme drought. On the other hand, natural gas has become more expensive and the war in Ukraine is unlikely to stop this trend.
Still, it’s important to note that without this “damper” of price increases, the cost of electricity would be much higher. Therefore, the increase in the electricity price is now more contained, but very real and visible in every bill.
Let’s take a look at the official information published by the Directorate-General for Energy and Geology (DGEG) for the first two days of September:
September 1, 2022
- Price without mechanism: €513.29/MWh
- Price with mechanism: € 193.36/MWh
- Adjustment costs: €263.23/MWh
- Final price: €456.59/MWh
September 2, 2022
- Price without mechanism: €423.19/MWh
- Price with mechanism: € 152.14/MWh
- Adjustment costs: €223.70/MWh
- Final price: € 375.84/MWh
Without the application of the Iberian braking mechanism, the average price for the first day of September would be €513.29/MWh (€0.5133/kWh). With the mechanism, and still with its cost, the price, for the same date, was €456.59/MWh (€0.4566/kWh), which is €56.70/MWh less, which represents a saving of almost 6 cents for every kWh means .
While the vast majority of contracts do not have prices indexed to the Iberian Electricity Market (MIBEL), operators ultimately look to these reference prices to set their rates over the 12 months of each contract. In this way, by creating this mechanism it is in fact possible to mitigate the effect of rising prices. It is not easy for the average consumer to visualize the true magnitude of this benefit, but the cost increase, even if minimized, is very real and visible on every bill.
For this first day of September, the cost of the adjustment was set at €263.23/MWh (or €0.2632/kWh), but the next day this adjustment would have already been set at €223.70/MWh (0, 2237 €/kWh). If the household invoice shows a count for the 30 days of the month of September, a maximum cost will be applied, calculated on the basis of the value of the adjustments published by the DGEG from 1 to 30 September. In August, for example, the adjustment average was €0.153/kWh.
The bills will certainly be different for those who have different counting periods, so will vary from family to family. But taking into account the values published daily in recent weeks, it will not be difficult to have monthly increases of 15 to 20 euros for every 100 kWh consumed. An additional VAT rate of 23 percent is added to this extra period.
How can I be sure I’m paying the right price?
DECO PROTESTE finds it unacceptable that consumers receive so little information in their new invoices about how the extra correction period is calculated. Apparently operators are limited to presenting a multiplication of the number of kWH consumed by a unit price that is not fixed in a public price list and which is the result of an internal calculation, to which only the operator has access.
It is possible to find some scattered information on the DGEG portal, but its complexity will not be easy for most consumers to understand. In addition, this information also only points to maximum values, which do not necessarily correspond to the amounts specifically applicable in the contract that each family has signed with its operator. There is therefore no simple and transparent way for the consumer to verify whether the calculation of his electricity bill meets all the established criteria.
In some cases, to which DECO PROTESTE had access (see example below), the new term appears on the invoice with the indication “Ajuste MIBEL” and there is no doubt that this represents a very significant increase in energy costs. But the consumer does not receive any further explanation of this calculation.
In addition, the value of the extra installment is subject to the maximum VAT rate (23%), which increases the final burden. All the more reason to demand a definitive reduction of the VAT on electricity to 6%, as we have demanded in recent years.
Since there is no way to confirm that the unit price of the kWh charged in the additional term is correct, not least because it will vary every day, consumers have no other solution but to rely on the supervisory power of ERSE , as the regulator of the energy sector . In fact, DECO PROTESTE expects ERSE to take an active and present role in this period of increased consumer effort, to ensure that all the calculation formulas used by the operators are correctly applied to citizens’ electricity bills.
We must not forget that behind this scenario hides the perverse effect of the so-called marginal market in the current energy context, as we have been warning since last year. This is an ongoing discussion at European level and one of the major challenges of the energy transition. Making much-needed decarbonisation compatible with energy prices that are not unaffordable for consumers is the major goal to be achieved.