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The Spanish electricity market

The Spanish electricity market was liberalized by law in 2009, and in 2010, the first new independent electricity companies gradually emerged. Costa Energía's management helped found the first independent electricity company in Andalusia in 2010, and has been involved ever since.

To understand how the electricity market works,

it’s important to separate the four main units that operate together before you get your electricity.   

·Electricity producers

·Electricity distributors 

·Electricity suppliers 

· The Power Exchange Market

1

Electricity producers

Electricity producers produce the energy we consume on a daily basis. In Spain, there is virtually all kinds of energy, from nuclear and fossil energy (coal, oil, gas) to water, wind and solar energy. The energy that comes out of your contact is a mixture of everything, because you cannot filter renewable energy on and off in the grid. That can only be done by your electricity supplier.

2

Electricity distributors 

This is where the general understanding of the electricity market most often goes wrong. Many of the names of the electricity distributors are the well-known names of the old monopolies such as Endesa, Iberdrola, (Gas) Fenosa, EDP, etc. On the Costa del Sol, the distributor is called “E-distribución”, but in the past the name was Endesa-Sevillana, or simply Endesa, while in Valencia Province it is the “I-de” (what used to be called Iberdrola Distribución) that sits on the majority of distribution. There are several hundred distributors in Spain. 

A few years ago, any company or groups of companies whose were actively involved in both distribution and sales were forced to change the name of either (a) their distribution company or (b) their sales company, as the common name gave them an unfair competitive advantage over the companies who do not distribute electricity themselves. They have had a very difficult time with this, with Iberdrola in particular, who have continued to  make many attempts to keep the name Iberdrola to be seen in their distribution, despite legislation to the contrary. 

The e-distribution companies are separated into geographical monopolies and the prices and services they have to work with are regulated fees. I.e. the Endesa Group’s electricity company must use I-de where I-de is the e-distributor, and vice versa. There are no alternatives, nor can the distributor say no to the power company, even though it is the group’s biggest competitor.  

The e-distributor’s main objective is to make sure that you get the electricity to your meter, and that it is quality electricity, i.e. a constant current (without “lumps”) and that there is always sufficient power available in your home or business. It is also the e-distributor’s responsibility to read your meter and that your meter works 100% according to the law.   

There is no communication between you and your e-distributor unless you have a problem with your meter, there is no power in the neighborhood or new equipment needs to be installed in your home. Costa Energía usually takes care of that communication for our customers, but you may need to be available if the e-distributor needs to make changes in your home. It is most often control of the meter, change of equipment or in cases of changes in “Potencia”.   

Bills are never sent from the e-distributor to private electricity customers.  

3

Electricity suppliers 

This is the company you do business with. They’re the ones who buy the power and sell it to you. In fact, your power company is a trading company, not a manufacturer or distributor. However, your power company may well be owned by a group that dedicates itself to both sales, production and distribution, as do, for example, the largest Spanish power companies.  

Your power company buys the power through a power exchange, in Spain (and Portugal). This exchange is called OMIE, and this is where the daily market price is set. This is a whole chapter in itself, but what is important to understand is that the independent electricity companies, as well as the big ones, all have to register all their electricity purchases with OMIE.

You can’t just set up a trading company and start buying and selling power. You have to sign up to all the bodies that regulate the market and you have to have contracts with all parties, you have to be certified both administratively and technically, because if you mess it up, the consequences can be very strong. In addition, guarantees must also be provided to both the network operator and OMIE before you can start buying electricity for your customers.   

The Spanish electricity market is in fact divided into three submarkets, each with its own rules: the Iberian Peninsula, the Balearic and Canary Islands, where both archipelagos have a subsystem for each island. An electricity company must be registered with each subsystem and qualify, both technically and administratively for each system, as they do not work equally, and then they must also be paid separate guarantees for each system.   

4

The Power Exchange – OMIE 

As mentioned before, the Power Exchange is where all Spanish power companies register their purchases of power, whether you have purchased within OMIE or you have traded directly with an electricity producer. All purchases must be registered with OMIE. 

We have sometimes heard from people: “Well, you buy your electricity from Endesa and sell it on”, but in short, that is not the case at all. You simply can not do that. Endesa, Iberdrola and the other big old monopolies only sell power to the consumer, not to other electricity suppliers for them to sell it on. All electricity suppliers purchase through OMIE. Hopefully we now have that misunderstanding cleared!

All power electricity suppliers indicate to OMIE, before 12:00 every day, 365 or 366 days per year, how many megawatts of power they expect to buy, hour by hour, for the next 24 hours. Internally, electricity purchase is measured in megawatt hours MW(h) whilst on the customers’ bills, we always show your consumption in KW(h), kilowatt hours.  

Daily prices are calculated in a “tassacion”, which is based on a hugely complicated algorithm, and these are the prices that today regulate the price of your electricity bill. Prices and what the electricity price (before distribution, losses in the grid and taxes) consist of, can be seen on the following website: https://www.esios.ree.es/es.  

In addition to the above 4 parties on the market, there are many more that regulate the everyday life of an electricity supplier, including CNMC, Esios, Red Electrica Española, SIMEL, OMIP, MEFF to name some of the best known.  

“Potencia is one of the biggest differences in the English and Spanish electricity markets and also an area where you can often save money. You can read more about this here (link). 

 

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