The recent power outage that impacted Portugal has raised concerns about its effects on electricity bills. The Regulatory Entity for Energy Services (ERSE) commented that the influence on bills depends on whether customers have fixed or indexed rate plans. Let’s examine the details.
Practically speaking, customers with energy prices indexed to the daily market might see their bills increase. For others, those on fixed-rate contracts, the repercussions of daily market price fluctuations on final consumer bills are likely to be non-existent.
The increase in wholesale market prices doesn’t necessarily translate into higher supply prices for end customers, especially for those who have chosen exposure to such market variations through indexed contracts, stated ERSE.
The ERSE explains that the market price is determined by the balance of supply and demand in the market, influenced by commercial exchanges between electrical systems. These exchanges are defined by network operators in compliance with European rules, ensuring operational safety and security.
However, the Portuguese regulatory system includes certain mechanisms to cushion daily market price variations. Such mechanisms involve purchasing renewable energy at guaranteed prices where higher market prices generate smaller surcharges and vice versa.
This mechanism acts as an automatic stabilizer for final prices, as the surcharge is supported in the network access component. Moreover, the ERSE has resumed renewable energy production auctions, allowing the market to stabilize final customer prices. In the last auction on March 25, nearly the entire production was sold at about 40 EUR/MWh, reflecting favorable market expectations and illustrating the tools available to stabilize final prices.
The ERSE emphasizes that the wholesale market price is a component in forming final consumer prices but not a decisive factor. Some energy suppliers procure energy in advance in long-term markets, insulating themselves from daily market prices. This strategy is common among providers offering fixed-rate contracts, where daily market price impacts on final consumers tend to be nil.
Conversely, customers with prices indexed to the daily market might notice a difference in their bills. Such impacts stem from the choice to have a contract exposed to market price variation. It’s important to note that indexed price offers are not the market norm, with fixed-rate contracts being more prevalent, requiring more sophistication from customers opting for indexed contracts.
ERSE further noted the short-term price volatility is inherent to the electric market. For example, on April 30, 2024, the daily market price was about 53 EUR/MWh, contrasting with May 2, 2024, when it dropped to 15.60 EUR/MWh for both Portugal and Spain.
On April 28, a widespread power outage left mainland Portugal, Spain, Andorra, and parts of France without electricity. Airports closed, transport and traffic congestion occurred in major cities, and fuel shortages were among the significant consequences of the blackout.
In response, the European Network of Transmission System Operators for Electricity announced the formation of a committee to investigate the causes of this “exceptional and serious” blackout, which plunged Portugal and Spain into darkness.
