What does Royal Decree Law 10/2022 mean?

What does the new concept on invoices mean?

On June 15, Royal Decree Law 10/2022 entered into force, which establishes, temporarily, a mechanism for adjusting production costs to reduce the price of electricity in the wholesale market.

This mechanism was the result of negotiations between the Portuguese Republic, the Kingdom of Spain and the European Commission, initiated following the conclusions of the European Council of 24 and 25 March, in which the Member States were invited to offer regulatory proposals to help mitigate the escalation of energy prices in Europe.

This measure has articulated a regulatory instrument that aims to reduce the marginal price of electricity in the wholesale markets of the Iberian peninsula and, ultimately, to promote a reduction in the retail prices borne by all final electricity consumers. The measure will apply for 12 months and until 31 May 2023 at the latest.

¿How does it works?

This consists of limiting the gas price that thermal power plants will apply when making their offers on the wholesale market. In this way the cost of energy will go down for the duration of these exceptional events.

It should be borne in mind that to this market price will have to be added the cost of the adjustment or surcharge, which is necessary to finance the difference between the price of gas set in the mechanism and its market price.

How is this measure financed?

It will be passed on as a cost to the marketers and they will have to pass it on to consumers through a concept added to the energy term that refers to the adjustment that was finally paid to this type of generation plants.

It will be passed on as a cost to the marketers and they will have to pass it on to consumers through a concept added to the energy term that refers to the adjustment that was finally paid to this type of generation plants. As well as the system adjustments, including the costs associated with these losses and the 1.5% levy will be passed on.

How do I know how much it costs?

The adjustment is defined each day on an hourly basis for the following day and depends on several factors, among others: the gas price on the wholesale market, electricity demand, etc.

OMIE ( Operator of the Iberian Energy Market), publishes the daily cost of the adjustment paid to the gas generation plants (see here) and transfers this daily cost to the marketers.

In each billing period, the amount in euros to be applied will be calculated using the adjustment information published by the Electricity System Operator and your consumption. If you have no consumption you will not see this charge on your bill.

It is important to note that the off-peak hours, when less energy is consumed and therefore used to be the cheapest, will now have a higher price, as these are generally the night hours when a greater amount of gas is needed for energy production.

Who is affected by this measure?

Applies to all contracts with indexed prices and to new contracts or renewals with fixed prices from 26 April 2022. If your permanent contract is prior to this date, you will not see the concept until the contract is renewed.

To sum up…

This regulation indicates that the price of gas used to produce energy will be capped in order to reduce electricity costs. Part of these costs will be covered by end-users. In other words, Evergreen Electrica has no impact on these amounts and only performs the cost pass-through.

Sources:

https://www.boe.es/buscar/act.php?id=BOE-A-2022-9838

https://energia.gob.es/electricidad/Paginas/Autorizacion-mecanismo-ajuste-precios.aspx