The European Union has finally given the go ahead to a mechanism which will to reduce electricity bills by between 15% and 20%, almost 10% less than previously published.
This mechanism, which aims to avoid that the price of gas continues to adversely affect the price of electricity on the wholesale market, will stay in effect until May 31, 2023.
Using a ceiling on the price of gas means the cost of electricity will be based on a combination of production methods rather than solely on the price of gas.
Initially, the price of gas will be set at 40 euros per megawatt hour (Mwh), which will reduce the price on the wholesale market from 182 to 200 euros (the price reached 700 euros in March) down to around 130 euros. The reduction takes effect on the wholesale market from next Monday but will not be reflected on our electricity bills until mid-July.
This limit on the price of gas will continue to rise by five euros a month until next January and anticipates a reduction from 71 euros, which is the current cost, to 48.8 euros.
This measure does not imply that the gas companies will operate at a loss as the difference between the “real” price and the ceiling will be the responsibility of the electricity companies and, although this will be passed onto the consumer, they will still note a reduction in their bills.
This reduction only applies to customers with regulated contracts and not to those who contract electricity on the “free market.”
The current Spanish government has petitioned the EU for permission to change the form of calculating the price of electricity, which is currently based on the wholesale market and, which, the Government claims, “malfunctions.” Yesterday the EU conceded. This means from 2023 the method of calculating will the price of electricity will not be linked to the free wholesale market and this should bring some stability to electricity prices.
