12 ABRIL 2022

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How is the price of electricity in Spain calculated?

price of electricity

Electricity bills are often difficult to understand, but one thing is even more difficult to understand: how the price of electricity per kilowatt-hour is calculated. In this article, we'll look at what the electricity pool is, how electricity prices change hourly, and what we can do to stop worrying about these ups and downs.

Who decides the price of electricity? 

The price per kilowatt hour of electricity is different for each consumer, depending on their contracting conditions, the type of tariff they have contracted, etc.

Users belonging to a regulated market (i.e. who have contracted the PVPC tariff) pay the price set by the wholesale market, which changes every hour of the day. On the other hand, each supplier in the free market sets its own prices. Some also have flat rates, so you pay the same amount every month.

The energy generated by all available energy sources is auctioned daily in an electricity pool, and the generating company sells it at a price that varies according to supply and demand.

Who intervenes in the electricity pool? 

In addition to some large consumers, generators, distributors and electricity traders also participate in the wholesale electricity market.

In Spain and Portugal, the situation is regulated by the independent operator OMIE. The agency manages daily and intraday electricity auctions in accordance with the regulations established in Europe.

This electricity market has one daily session and six intraday sessions:

  • Daily session. In this session most of the energy is traded and bids can be submitted for all hours of the following day.
  • Intraday sessions. During this type of session certain prices are adjusted.

The price of light and the amount of energy to be sold and bought is determined in these sessions, but not arbitrarily. The price per kWh is set on the basis of an equilibrium point resulting from supply and demand.

How is the price per kilowatt hour of electricity calculated each day?

The price of electricity is fixed in the electricity market at 12:00 noon and is valid for the next 24 hours.

The cost is calculated using an algorithm called EUPHEMIA, which is approved by the EU and applied in different European countries.

The energy producing companies (hydro, renewable, nuclear, etc.) communicate the amount of energy they can supply the following day and the amount for which they are willing to sell.

First, they auction the cheapest energy (usually nuclear). If there is not enough energy to cover the existing demand, renewable energies are auctioned and finally the most expensive energy (such as natural gas).

However, the last energy that goes into the pool is the one that sets the final price per kilowatt. Therefore, all power generating companies charge the same as the most expensive energy source. This is the so-called marginal price.

Consult the price of electricity every day

Electricity purchase prices and retail prices are published on OMIE’s website.

Prices per kWh can be consulted on ESIOS, the information system provided by Red Eléctrica de España (REE).

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