Rising electricity prices: an opportunity for self-consumption?

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On Tuesday 20 July, electricity prices reached their highest level in 20 years, with an average of 101.82 euros per megawatt hour. This historic rise in electricity prices is due to the new electricity billing system, which came into force last June. In this article we will explain the origin of these price increases and how to combat them by installing photovoltaic panels.

On 1 June 2021, the new electricity billing system came into force in Spain, with the aim of giving consumers access to more transparent billing and allowing them to decide on their own consumption, with the ultimate goal of making consumption a responsible consumption. 

This system will be applicable to all consumers, both those covered by the Voluntary Price for Small Consumers and consumers on the free market.  The new system established to encourage responsible consumption increases the cost of kW and penalises consumption abuses. In this way, hourly discrimination is established, in which billing for each of the access tolls is different depending on the time of day in which consumption occurs. Specifically, it establishes three differentiated periods: peak - from 10-14h and 18-22h, where the price will be higher - flat - from 8-10h and 22-24h where the cost will be intermediate -  and off-peak - from 22h to 8h and all hours of weekends and holidays, where consumption will be cheaper.  

Nonetheless, there is a part of the bill that is not regulated and is fixed through the criteria of the energy market, which has meant that April, May and June 2021 have been the months in which electricity has been the most expensive in recent years. This historic rise in electricity prices can be partially explained by the historic highs reached by the CO2 tax rate in Europe - a determining factor in the setting of tariffs in the Spanish wholesale market. 

Therefore, consumers who want to consume responsibly will not only have to plan the consumption according to the access toll bands, but also according to the prices on the hourly energy market each day. Through this structure, the aim is to encourage consumers to shift electricity consumption from the hours of maximum electricity demand - peak demand - to the hours when the networks have less demand - flat and/or off-peak hours - in order to pay less on their bills. This could open the door to photovoltaic self-consumption. 

If the new bill aims to change consumers' habits, those who have solar panels for self-consumption could benefit. The distribution between time slots is beneficial for these users, as the hours of greatest sunlight - the hours of greatest self-consumption production and when the most energy can be generated - is also when the price of electricity is most expensive. When self-consumption can produce the most, it is the most expensive time to go to the grid. Thus, all the energy consumed by the photovoltaic panels is, in turn, energy that does not have to be purchased during peak hours. 

Therefore, starting to self-consume solar energy is no longer simply a necessity to tackle climate change. It is also a possibility to reduce the impact of electricity prices and tariff changes, lowering the cost of energy for these consumers and making the installations even more cost-effective and quicker to pay back.

 

 1. El país: “La electricidad hoy, la más cara en 20 años: ? a qué hora será más barata?, [Web]. Accesible en: https://www.lavanguardia.com/economia/bolsillo/20210720/7611131/electricidad-luz-pagar-trucos-ahorrar-cara.html 

2. In the free market, the price is set by the company, which means that consumers know how much they will pay for each kWh they consume.  [Endesa]. 

3. En el mercado libre, el precio lo fija la empresa, lo que conlleva que los consumidores saben cuánto van a pagar por cada kWh que consuman. 

4. Access tolls are  the items of the bill that are regulated by the Ministry of Industry, they include the cost of transporting and distributing energy and other charges indirectly related to the electricity supply. [OCU]

5. In April last year a tonne cost an average of 20 euros and now a tonne costs an average of 45 euros. This rise can be explained by Europe's ambitious climate policy as well as by increased financial investment in this market]. S, Meredith, "Why the world 's largest carbon market is experiencing a boom like never before". Sustainable Future. CNBC. 

6 I, Mendoza Losana (2021): “La factura de la luz: en constante reforma en busca de una quimera”. Revista CESCO de Derecho de Consumo. Ministerio de Ciencia, Innovación y Universidades y Agencia Estatal de Investigación.