Energy prices have been incredibly high in Spain in recent years, as a result of a combination of inflation and the impact of the Russian invasion of Ukraine. During a meeting of the Cabinet earlier this week, the Spanish government was due to approve a new reform of the regulated electricity tariff.
This is an incredibly important reform, and one that will impact everyone living in Spain financially. This is because when it comes into force, it will work to avoid price spikes, meaning unexpected surprises in electricity bills can be avoided.
The name of the policy is the Small Consumer Sale Price (PVPC), and whilst no date has been given for its introduction, we do know that it is expected to be introduced in early 2024. Here’s everything you need to know about how this might impact you:
What is the Small Consumer Sale Price (PVPC)?
The role of the PVPC plan is to ensure that the electricity market adopts a longer-term pricing policy, rather than changing prices on a daily basis. This means that, in theory, crazy price hikes can be avoided. This was a huge problem in 2022, with daily price hikes occurring daily in the country. During this time, Spanish consumers could not predict how much their electricity bills would be from one month to the next.
The third vice president, Teresa Ribera, confirmed on Monday, that the "fundamental" purpose of the new regulated electricity tariff is to "reduce volatility", after the National Market and Competition Commission (CNMC) warned a few months ago that the new formulation could lead to a price increase.
Whilst the primary function of the tariff is not to directly lead to economic savings for consumers, this should be a secondary reaction. In the first draft of the proposal for this tariff, when it was introduced, it was estimated that consumer savings as a result would be around €297.1 million per year.
In her statement, Ribera said that the PVPC tariff, "has been the most convenient since it was introduced, and with the turbulence of last year we realised that it was also unsafe if we had another episode like that of 2022".
How will the PVPC Tariff work?
Ribera explains how the PVPC tariff will work by stating that "What we have done, is to introduce correction factors so that the rate, to a large extent, reflects the daily market price but also the prices that reflect the future markets, three months or one year ahead".
This is exciting news, and will be hugely beneficial for Spanish consumers, but it cannot be put in place until the beginning of next year, although no exact date beyond the phase ‘early 2024’ has been given. The reason it will take time to get the Tariff in place is so that electricity providers have the time they need to buy the necessary volume of energy to sign the required contracts.
Why Has the PVPC Tariff Been Delayed?
The introduction of the PVPC tariff has been in discussion for more than a year, and it has been over a year since the Spanish government promised the European Commission it would do so.
Spain has to introduce this tariff because it is one of the conditions given by the European Commission for giving Spain and Portugal the green light to begin their Iberian mechanism in June 2022. The deadline originally scheduled for this was the beginning of 2023.
Around 8 million households have the PVPC tariff rate in place. From 2024, when the scheme is established, those consumers would no longer depend on the daily electricity auctions. 45% of their electricity tariff would be based on this whilst the rest will be set based on longer-term contracts.
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