The CNMC (The National Commission on Markets and Competition) which is an independent public body that supervises and regulates several markets of Spain, reported last year that 3 out of 4 people in Spain are unaware of the differences between the free and the regulated market in electricity and gas. This indicates that most customers are not aware of that they can choose other companies apart from the traditional ones and, amongst other things, that they can choose between rates with a regulated price or one on the free market. Basically, any customer can decide which rate best suits their needs, no matter where you live or your residential status.
To disperse the doubts that still exist, today we shed light on the free electricity market, the way it works and its most important features.
This market has its origin in the liberalization of the sector that began in 1997 and has 2008 as its final key date. Thus, we could summarize the history of the Spanish free electricity market in two specific stages:
- At the end of the 1990s: Law 54/1997 on the Electricity Sector began a process of liberalization that entailed a total restructuring, going from a vertical structure in a regulated market where all activities were grouped under an oligopoly, to a horizontal structure where each activity is separate and independent, with four predominant agents: the generators, the carrier, the distributors and the suppliers.
- End of the 2000s: the legislative opening process is finalized, and the first free trading suppliers enter the new liberalized market. The price of electricity is established daily in the wholesale electricity market, known as the “pool” and regulated by OMIE, the independent market operator.
The “pool” has its own electricity pricing system. To simplify it, we highlight that this wholesale market has one main daily session and another six intraday to correct purchase and sale forecasts. The daily market session is always held the day before the electricity is delivered and it is where the production plants sell their energy.
In this market, offers are presented for 24 hours the day after the market closes, which occurs at 12.00 pm. In the Spanish daily market all energy is sold at the cost of the most expensive supply necessary to meet energy demand. This implies that all generators (producers) receive the same price from buyers (traders, final consumers and others), determined by the crossing of the supply and demand curves. This matching price for each hour sets the final price of the energy exchanged in the market, which is published daily on the OMIE website in an open and transparent manner.
It is important to note that the price of energy accounts for only about a third of the total monthly bill, since the rest is made up of fixed costs (power capacity or “potencia”), costs regulated by the Government and taxes.
