There is no doubt that we are experiencing a situation of unprecedented tension in the electricity market. The Government reacted with good intentions, passing a Royal Decree-Law (RDL) aimed at limiting the impact of the rise in prices on households, but it did so hastily, with unforeseen and unintended effects.

One of the approved measures was the creation of new taxes on generators (disguised as “income reductions”) to remove alleged “undeserved benefits” derived from the increase in prices. The power companies were quick to point out that they sell electricity under fixed-price contracts and that the amount of the tax exceeded the price of those contracts, which is absurd. The government reacted by issuing a clarifying note exempting independent generators from the tax if they sell their electricity under contract and at a fixed price.

The explanatory note is of doubtful legal validity (it lacks the legal rank to modify an RDL) and, in addition, it is discriminatory, because it does not exempt generators of vertically integrated companies that sell their electricity at a fixed price through a marketer. As a consequence, industrial consumers that had entered into fixed-price contracts have received burofaxes from their traders to renegotiate their contracts and increase their prices. Thus, the RDL will result in a higher cost for large industrial consumers, which may threaten their viability.

Another effect is that generators that have not been exempted incorporate the tax into their offers in the generation market to avoid incurring losses if they are called upon to produce electricity. As a result, there have been wind plants that have stopped working because the market price was insufficient to pay the new tax, leading us to import non-renewable electricity from France and Morocco.

The RDL will also have medium and long-term effects, as the reduction sets a dangerous precedent. Generators invest in new plants, expand capacity or extend their useful lives precisely because they expect to be able to recoup part of their investment when prices increase. But if they anticipate that the government will intervene every time this happens, they will stop investing and close plants, and the result will be a higher price in the market.

This set of nonsense has its origin in a wrong diagnosis of the problem because, except for vulnerable consumers, those who are exposed to the spot price is because they have decided so, because they consider that in the long term it is the option with the lowest cost. And if they change their mind, they can simply enter into a fixed-price contract on the free market, without the need for the government to intervene. Because, although the price of contracts in the free market has also risen, it has done so to a much lesser extent than in the spot market and barely represents about 15 euros per month in the average household bill, something that is acceptable for most of the homes.

The only consumers that had to be protected are vulnerable consumers because, incomprehensibly, the regulations do not allow them to contract their supply at a fixed price in the free market if they want to receive the discount of the electricity social bonus or the heating check. It makes no sense to condition the perception of these aids on vulnerable consumers agreeing to be exposed to the spot market price, as if it were a punishment to discourage requests for help.

What should the government have done? The first is to increase the amount and advance the sending of the heating check to vulnerable consumers, to compensate for the increase in their energy bills, as has been done in other countries. The higher revenue from the auctions of emission rights that the Government is obtaining would be more than enough to finance this aid without the need for new taxes or additional interventions.

In this sense, it is incomprehensible that the Government has decided to give a culture check for 400 euros to those who turn 18 instead of using that money to increase aid to families in a situation of energy poverty. Will the government allow culture check recipients from families in poverty to use these checks to buy food or heat?

Second, the Government should allow vulnerable consumers to contract their supply on the free market at a fixed price with the marketers of their choice. To do this, the social bond should no longer be defined as a percentage discount on their bills, and they should be exempted from having to pay taxes and non-supply charges (which historically represent half of the domestic bill). It doesn’t make sense for vulnerable consumers’ bills to include non-supply costs, which are nothing but hidden taxes.

In addition, the Government should take over the processing of social bonus applications (and heating checks), instead of leaving these procedures in the hands of the electricity companies, whose corporate purpose is not to help vulnerable consumers and whose incentives are to reject them. requests because they are the ones who bear the cost of the voucher.

The Government has been badly advised, and its reaction to the increase in the price of the electricity market has been disproportionate: helping consumers who do not need it (because they have a supply at a fixed price or can contract it if they wish), harming large industrial consumers (whose contracts are being renegotiated) and distorting the functioning of the market (which reduces supply and increases prices). The Government should rectify to focus on helping vulnerable consumers, who are those who really need it and who are exposed to the increase in the price of the spot market not by their own will, but by regulatory imposition.

Oscar Arnedillo Blanco / Jorge Sanz Oliva are Managing Director / Associate Director at NERA Economic Consulting. Former President of the Group of Experts for the Energy Transition.

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