The electricity bill will rise in the coming months for all consumers and some are already feeling the spending increase, as changes are being made to all contracts signed or renewed after April 26. As a rule, contracts for the supply of electricity have an annual term and are renewed for equal periods, with the possibility of changing prices at the time of renewal.
The legislation states that all contracts concluded or renewed after April 26 are subject to the imposition of an additional premium, which must be repeated on all invoices until May 2023. What the consumer does not know, and cannot calculate, is the value of this additional premium, which will vary depending on the operator, which will pass The cost is in addition to the new prices for producing the electricity needed for that consumption.
Since the market makes daily adjustments to the cost of producing electricity, each consumer will have a different additional payment to pay, depending on the date of their billing and the calculation period they are referring to. The method of calculation is unknown to consumers and may differ between operators, 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 premium?
Charging the extra portion of the electric bill is the visible part of the so-called “Iberian brake”, which was created to contain the rising cost of producing electricity. However, this mechanism is more than just a brake, it is in fact a “retarder”, since it does not completely prevent the price increase, but only prevents it from being too sharp.
The creation of this mechanism became legislation, still in the second quarter, and was an inevitable outcome of a dramatic scenario involving two major energy sources that ensure electricity production: water and natural gas. On the other hand, the water available in dams is decreasing as a result of severe drought. On the other hand, natural gas is becoming more expensive and the war in Ukraine is unlikely to stop this trend.
However, it is important to note that without this “disincentive” to price increases, the cost of electricity would be much higher. Therefore, the increase in the price of electricity is now more contained, but very real and visible in each bill.
Let’s see the official information published by the Directorate General of 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 EUR / MWh
- Modification cost: €263.23/MWh
- Final price: €456.59 / MWh
September 2, 2022
- Price without mechanism: 423.19 € / MWh
- Price with mechanism: 152.14 EUR / MWh
- Modification cost: €223.70/MWh
- Final price: €375.84/MWh
Without the application of the Iberian brake mechanism, the average price for the first day of September will be €513.29/MWh (€0.5133/kWh). With the mechanism, and still being affordable, the price, on the same date, was €456.59/MWh (0.4566/MWh), which is €56.70/MWh less, representing a saving of approximately 6 cents per kWh. .
Although the vast majority of contracts do not have market-indexed prices for Iberian Electricity (MIBEL), operators end up looking at these reference prices to determine their tariffs within 12 months of each contract. In this way, by creating this mechanism, it is actually possible to mitigate the impact of higher prices. It is not easy for the average consumer to visualize the true dimension of this feature, but the cost increase, even if it is reduced, is very real and visible in every bill.
On the first day of September, the cost of the modification was set at €263.23 / MWh (that is, € 0.2632 / kWh), but on the next day, this modification will already be fixed at € 223.70 / MWh (0.2237 / kWh) ) . If the family bill shows a number for 30 days from September, the maximum cost calculated based on the value of the adjustments published by DGEG from September 1 to 30 will be applied. In August, for example, the average adjustment was 0.1532 euros / kWh.
The calculations will certainly be different for those with other counting periods, and therefore differ from family to family. But, taking into account the daily published values in recent weeks, it will not be difficult to obtain monthly increases of 15-20 euros per 100 kWh consumed. To this additional premium is added value-added tax at a rate of 23 percent.
How can I be sure I am paying the right price?
DECO PROTESTE considers it unacceptable that consumers receive, in their new bills, too little information on how the additional adjustment premium is calculated. Apparently, operators are limited to offering a multiplication of the kWH consumed per unit price which is not specified in any public price list and which results from an internal computation, which only the operator can access.
It is possible to find some information scattered on the DGEG portal, but its complexity will not be easy to understand for most consumers. In addition, this information also indicates only the maximum values, and does not necessarily correspond to the amounts specifically applied in the contract that each family signed with its operator. Therefore, there is no simple and transparent way for the consumer to check whether the calculation of his electricity bill meets all the specified criteria.
In some cases, to which DECO PROTESTE had access (see example below), the new premium appears on the invoice with the label “Ajuste MIBEL” and undoubtedly represents a very significant increase in the cost of energy. But the consumer does not receive any further clarification on this account.
In addition, the value of the additional premium is subject to the maximum VAT rate (23%), which exacerbates the final expenses. This is all the more reason to categorically demand a reduction in the value-added tax on electricity to 6%, as we have been demanding in recent years.
Since there is no way to be sure of the correctness of the kWh unit rate charged in the additional premium, not least because it will vary every day, consumers have no other solution than to trust the supervisory strength of ERSE, as the energy sector regulator. Indeed, DECO PROTESTE expects ERSE to take an active and current role in this period of increased effort from consumers, ensuring that all the mathematical formulas used by operators are correctly applied to the electricity bills of citizens.
We should not forget that behind this scenario is the detrimental effect of the so-called marginal market in the current energy context, as we have warned since last year. This is an ongoing debate at the European level and one of the main challenges of the energy transition. Bringing much-needed decarbonization into line with energy prices that are not too expensive for the consumer is the larger goal to be achieved.
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