So what’s all this about electricity prices rising 33%?

Given the mass hysteria online over the supposed electricity price hike, I thought I’d drill down and see what was happening.

The first thing to understand is that those who react to the message are on the periphery of Spanish political in-fighting. Last week there was a concerted surge of popular messages across Spain calling for an apagón (switch-off) on Friday to protest against high electricity prices. Different political parties threw their weight behind one camp or another and the whole thing was a jolly good talking point (or row starter) in a quiet news week. It’s driven by the supposed corruption of politicians in accepting well paid jobs in the electric sector after leaving office. Here’s a recent chart of politicians now on different boards as supplied by El Confidencial newspaper:

Anyway, back to the price hike.

Last week saw a polar blizzard sweep across Spain. During the same week, we saw electricity prices rocket. Proof, claim the popularists, of price gouging by the utility companies who are allowed to do what they want by toothless politicians who are in their pay. But let’s have a quick look at how the electricity market works in Spain.

Spain divides their electricity network in three blocks: Producers, transport network and suppliers. Producers can’t be suppliers, they have to be different independent companies. The transport network is public but underwritten by the suppliers (who levy taxes upon end consumers, ie you, to pay for the cost). Producers auction off their prices to the highest bidder in several different markets: short term markets (when suppliers pay per day or even per hour costs) medium term (fixing prices on a weekly or monthly basis) or even long term (x amount of electricity over y time period at a fixed cost, usually a market used by the larger factories).

What you need to know is what tariff you are on (check your bill). Spanish electricity bills are amazingly complex, but we can distil them into tariffs for domestic users: fixed and variable.

If you’re on a fixed rate, none of this applies to you because you’ll pay the same over the course of the year.

If you’re on a variable rate, your tariff fluctuates according to the underlying true cost of electricity. In which case, you can see how much your electricity cost per Kw/h is here (Endesa in English, other providers will have their own prices and pages). You’ll notice that over the last week the price has fluctuated from €0.11 to €0.17, quite a change! And overall, the cost of off-peak consumption seems to be about €0.02 higher this Sunday than last.

But the price per Kw/H isn’t the main factor in your bill. You get charged for the potencia contratada, the electrical capacity of your connection. You get charged for taxes, IVA and your meter rental. They’ve recently obfuscated the tax bit by taking certain taxes that used to be separate on your bill and hiding them into the consumed energy bit, but it’s still there.

For one bill I had over the summer when I was away, not using much electricity, I calculated I was paying €0,46 per Kw/h! That was calculated by dividing the Kw/h into the total bill.

Anyway, the underlying costs of Spanish production continue to rise. A collapse in the renewable generation plant (it wasn’t windy or sunny last week!) meant that older fossil fuel plants had to pick up the slack. France, a net exporter, was using more electricity and started to increase export prices. And fossil fuels are more expensive.

All this translated into a sudden hike in the spot price for electricity. But this is an overall trend. Price per Kw/H have been slowly increasing over the last three months, and now Rajoy, annoyed by negative press, is threatening an investigation into why.

So there you are. If you’re on a fixed rate tariff, don’t worry about it, unless you still have discriminación horaria (hourly discrimination). If you’re on the variable rate, don’t put the washing machine on during peak hours.

Spain has the third highest electricity prices in the EU, higher than in the U, after overtaking Eire and Italy late last year. With an ageing infrastructure, closure of plants and future increase of fossil fuel prices, it isn’t going to get better.