Electricity prices soar 172% in one year

Government's 'in extremis' VAT cut from 21% to 10% avoids most expensive bill in history

3 min
Electricity meters

BarcelonaThe price of electricity has closed June with an all-time high. The average megawatt hour (MWh) has been 83.3 euros, a level that shatters the previous record, achieved in January 2017, when the MWh stood at 71.49 euros. Moreover, if compared with that of June last year, it has soared to 172%, although it is true that then the price fell sharply due to the fall in consumption due to the pandemic. However, this June, the average price in the wholesale market has been 76.5% higher than during June 2019, when the coronavirus crisis had not yet occurred. The Association of Large Energy Consumption Companies (AEGE) has already sounded the alarm about the impact this may have on their costs.

Despite this increase in the price of electricity in the wholesale market, the impact on customers' bills is minor. On the one hand, because the wholesale market only affects a third of the bill, since the rest are taxes, tolls and regulated costs. On the other hand, because the VAT reduction from 21% to 10%, approved in extremis by Pedro Sánchez's government has allowed to avoid a record bill.

The Organization of Consumers and Users (OCU) has made the calculations. The bill for an average household will stand in June at 69.3 euros, almost the same as in May and 28% higher than June last year.

The calculation has been made for what could be considered an average consumer, ie, someone who has a contracted power of 4.6 kilowatts (kW) and a consumption of 292 kilowatt hours (kWh) per month. The OCU believes that without the VAT cut on electricity approved by the Spanish government last week the bill for this customer profile would have reached 76.3 euros and would have become "undoubtedly the highest bill in history", as indicated on Tuesday in a statement.

For this consumer organisation, the price of electricity has not only risen in June, but already marks an upward trend throughout the year. During the first half of 2021 the electricity bill has been 22% higher than the first half of last year: a difference of 72.4 euros for an average consumer. This is equivalent to about 40 days of electricity consumption difference. Or to put it in another way, this year, in six months, for an average household the cost of electricity is equivalent to seven months of last year.

However, the OCU, which welcomes the VAT cut, believes it is an insufficient measure to reduce the cost of electricity. However, the OCU, which welcomes the VAT reduction, believes that it is an insufficient measure to reduce the cost of electricity. This increase, however, cannot be explained, and for this reason the organisation has asked the National Markets and Competition Commission (CNMC) to open an investigation into "the spectacular rise in the price of electricity in recent months" because "there is no complete and satisfactory explanation for it".

CNMC endorses the cut

The National Markets and Competition Commission (CNMC) has approved the report that endorses the draft bill on the remuneration of CO2 not emitted in electricity generation. It is a proposal of the Ministry for Ecological Transition that wants to put an end to the so called benefits fallen from the sky. The project, which at current CO2 allowance prices could cut electricity prices by more than 1 billion euros, aims to remove the cost of CO2 from the generation of electricity produced without emissions - for example hydro and nuclear - in installations in operation before the CO2 market comes into force.

Despite the endorsement of the project to cut the electricity bill, the body chaired by Cani Fernandez believes that the savings achieved should not go to a reduction in the costs of the electricity system, but directly to reduce consumers' receipts.