Electricity Rates in the Open Market
The definitive guide for people who want to pay less on their electricity bill.
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Everything You Need to Know About the Free Market
Spain’s free electricity market allows consumers to choose among different electricity suppliers and rates, negotiating price and contract terms independently of the regulated market (PVPC).
1. What is a free market?
Let’s put this into context: the free market hasn’t always existed; in fact, it was created in 2009 to end government regulation of electricity and natural gas. And while there are currently 8 electricity suppliers still managed by the government, there are also more than 300 that set their own electricity prices and rates within this free market.
And maybe you’re thinking… So what am I supposed to do? Compare 300 companies to see how I can save a few euros at the end of the month? Can you imagine how long that would take? Until about a year ago, the vast majority of Spaniards didn’t care about rates and markets. And now, we’ve got a master’s degree and a Ph.D. in the subject.
It’s true that the regulated market rate, the PVPC, charges you the cost price per kWh. But the thing is, that cost isn’t what it used to be. These rates are based on three tiers: peak, off-peak, and low-peak. And this price varies every day (you can see the updated price here every day).
Okay, so as things stand, the “cheap” price (that is, the off-peak rate) can fluctuate—one day it might be €0.165 per kWh, and the next day, the cheapest hourly rate might be €0.312 per kWh. And you have two options: either you cut off all power to your home, or you just have to put up with these ups and downs.
As you can see, the regulated market isn’t currently the most profitable option for saving.
2. What are the differences between the free market and the regulated market?
- To begin with, the number of energy retailers. In the regulated market, there are only 8 electricity suppliers, while in the open market, the selection is much wider, with as many as 300.
- There are more plans to compare so you can choose the one that best suits your needs. Each electricity provider in the open market can offer as many plans as it wants at whatever price it chooses. And you are free to choose.
- In the free market, you have special offers and discounts, which the regulated market cannot offer.
- In some cases, in order to take advantage of these discounts or special prices, you’ll be required to sign a 1-year contract.
3. What rates are available on the open market?
1. Flat Rate
The most dangerous one. With this plan, you sign a contract with the company for a full year with a seemingly fixed monthly payment based on your electricity usage from the previous year. At first, this sounds great because, given current electricity prices, who wouldn’t sign a contract that promises peace of mind, knowing that the bill will always be the same amount? Here’s the fine print: You are NOT free to use as much as you want. You cannot exceed the maximum kilowatt percentage set monthly for your flat-rate plan. And here, three things can happen:- The most common scenario is that you’ll exceed your contracted kWh allowance, and at the end of the year, your utility company will bill you for the difference (with a surcharge—we’re just warning you).
- That you’ve used fewer kWh than you were contracted for and that your utility company refunds you the difference.
- That each month you use exactly the number of kWh included in your plan, so you don’t have to pay anything extra, and you don’t get a refund either.
2. Indexed rate
These rates work the same way as the PVPC: they charge for electricity at the same price as on the regulated market. What does that mean? Well, just like in a free market, the price changes every day, and we see 24 different prices that reflect the various market fluctuations. So you’re not protected from the daily ups and downs in energy prices. In addition, on top of that price, they add a monthly fee or a charge for each kWh you consume, which is usually around 4 to 6€. Is it worth signing up for an indexed rate right now? It depends on the state of the electricity market. When it’s cheap to generate electricity on the wholesale market—and the price per megawatt is low and stable—it can be a good idea to choose an indexed rate. But if, as is currently the case, electricity prices keep rising, it’s best to avoid these rates, which will lead to unwanted surprises at the end of the month. For that reason, we do NOT currently recommend it.3. Fixed or stable rate
As of today, they are the most reliable because the price per kWh remains fixed for at least a year, and that provides a great deal of peace of mind because you know you won’t have any unpleasant surprises at the end of the month. With these plans, you always know exactly how much you’ll pay because your electricity rate stays the same 24 hours a day. Within this fixed-rate plan, there are two options: 1- 24-Hour Flat Rate: With these plans, the price per kWh remains the same 24 hours a day, so you don’t have to worry about time-of-use rates. No matter what time it is, you pay the same rate all the time. So if your lifestyle doesn’t allow you to adapt to different electricity rates, this is the perfect plan for you. 2- Time-of-use rates: These are rates that have three time periods, each with a fixed electricity price.- Punta, the expensive one: 10 a.m. to 2 p.m. and 6 p.m. to 8 p.m., Monday through Friday.
- Llano, the media outlet: Mornings from 8 a.m. to 10 a.m., afternoons from 2 p.m. to 6 p.m., and evenings from 10 p.m. to midnight, Monday through Friday.
- Valle, the cheap option: 12 a.m. to 8 a.m. on weekdays and all day on weekends and holidays.
4. Is it worth signing up for a fixed-rate plan on the open market right now?
If you want to avoid worrying about fluctuations in electricity prices, fixed-rate plans are your best bet.
Will you still have off-peak, regular, and peak hours? Yes, but with the assurance of knowing the price per kWh at all times and the peace of mind that it will always be the same.
Which utility company is best for signing up for a fixed-rate electricity plan? Well, it’s hard to tell you this without knowing what your home is like, your current energy usage, and your lifestyle. But one of the advantages is that there are more than 300 energy suppliers that can adapt to your needs.
In short… When is it best for you to be in the open market?
- You can’t adjust to the time periods: if your lifestyle doesn’t allow you to adapt to the cheaper rates and you end up always running the washing machine during peak hours, it’s best to sign up for a flat-rate plan with a fixed price 24 hours a day and forget about the three time periods.
- You want to sign up for gas with the same company that provides your electricity: if you’re looking for a plan that includes both services, you’ll have to be in the open market.
- Do you want to take advantage of special offers and discounts? This is only possible in the free market, since the regulated market—being managed by the government—is not allowed to do so.
- Electricity prices never seem to stabilize: this is the current reality, and open-market rates offer much better protection against these fluctuations—especially stable or fixed rates.
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