CIRCULAR 3/2020: THE REFORM OF THE ELECTRICITY TARIFF SYSTEM IS NOW A REALITY WITH THE NEW RESOLUTION RAP/DE/003/20

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CIRCULAR 3/2020: THE REFORM OF THE ELECTRICITY TARIFF SYSTEM IS NOW A REALITY WITH THE NEW RESOLUTION RAP/DE/003/20

After more than a year since the publication of Circular 3/2020, its complete reform of the Spanish electricity tariff system is no longer uncertain. The planned changes that everyone hoped to avoid are now here to stay.

Last year, at this same time, we faced one of the most hotly contested directives of 2020, the famous CNMC Circular 3/2020. This circular establishes the methodology for the calculation of electricity transmission and distribution tolls, as well as a total reform of the system of electricity periods and tariffs, applicable from 1 November 2020. What the CNMC did not expect was the global health crisis, which occurred just a few weeks after the publication of Circular 3/2020 in the BOE. So, due to the difficulties of the Covid19 pandemic, in the end there was no other option but to postpone the application of one of the most radical changes in the electricity sector, with a direct impact on both suppliers and the consumers, until April of the following year. And it was just last week, a year after the publication of Circular 3/2020, that the CNMC published its Resolution RAP/DE/003/20, establishing the values of the access tolls to the transmission and distribution networks for 2021. This proposal, published on the CNMC’s official website, revises the costs of the tolls published last year in Circular 3/2020, validating their entry into force from April 2021. With the publication of this resolution, we can take it for granted that the radical change in the electricity sector that was planned more than a year ago and that everyone hoped to avoid, is going to become a reality.

CNMC AND MINISTRY OF ECOLOGICAL TRANSITION: RESPECTIVE COMPETENCES

But let’s take it step by step. First of all, let’s put some order on the definition of electricity tolls and on the entities in charge of formulating the methodology and calculation of these prices.

Current access tolls consist of two components:

  • Tolls: intended to cover network costs;
  • Charges: to cover the rest of the cost components, such as renewables, non-mainland systems and deficit annuities.

The different components have evolved as follows since 1998:

Figure 1: Evolution of the Spanish electricity system costs (1998-2016). Source: MAGNUS CMD

Until the publication of RDL 1/2019, the Ministry for Ecological Transition has been the entity in charge of establishing the methodology for the calculation of electricity tolls, both tolls and charges. However, with the separation of competences between the CNMC and the Government, established by RDL 1/2019, the former manages the methodology for calculating tolls, while the latter is in charge of the calculation of charges. Until now, with the extension of electricity tolls until 2020, the separation of competences in this aspect had not yet been applied, so that suppliers and consumers sent and received, respectively, the information on the costs associated with tolls and charges in a single component, known as ATR. With the publication of RDL 1/2019, what is intended is more transparency in both costs, since the same supplier has the duty to transfer these costs separately in the electricity bill.

With the publication of the proposed Resolution RAP/DE/003/20, the CNMC provides the values of the access tolls relating to the component under its competence, while we are still awaiting the publication of the charges by the Ministry. Therefore, for the time being, only a part of the total transmission and distribution costs that are normally passed on to the consumer has been defined.

Said that, we will now go into detail on the key aspects of the new resolution, which is subject to public consultation for the submission of allegations and observations by the members of the Electricity Advisory Council within ten working days from its publication.

POWER ATR AND PENALTIES FOR POWER EXCESS

With the publication of Circular 3/2020 last year, the new tolls already brought forward a substantial reduction in the costs related to transmission and distribution networks, both in energy and power, but with a greater impact on the latter. The difference between the tolls currently in force and those published last year in Circular 3/2020 is shown below.

Figure 2: Difference between the power term of the current access tolls and those proposed by Circular 3/2020. Source: CNMC

Substantial reductions for this term are also confirmed by the new Resolution RAP/DE/003/20, published at the end of January of this year, where the cost related to a 6.X tariff, for example, is reduced by almost half.

What we have been seeing with the first simulations among our customers has been that, if on one hand power tolls are indeed considerably lowered, on the other hand, the customer is passed on an increase in the penalty for power excess, which results in about 3 times the current penalty cost.

This increase has also been a consequence of the redefinition of the distribution of hourly periods, where the hours in P5 and P6 have decreased and have increased in the rest of the periods. This redistribution, which aims to raise consumer awareness of more efficient energy use, directly affects the consumption curve, generating additional excess power for some consumers due to exceeding the previously contracted limits per period. If we are talking about industrial consumption, such as the 6.X tariffs, we tend to have much more consumption in P6 and in fact higher contracted power for this period. With the new distribution of periods, customers will now have increased consumption in P1, P2, P3 and P4, where they used to have lower contracted power. Hence the generation of excess power, moreover penalised at a price 3 times higher than the previous one.

Figure 3: Redefinition of the system of periods according to Circular 3/2020. Source: MAGNUS CMD

In order to mitigate this power excess cost, one of the most convenient solutions would be to proceed with a power optimisation according to the customer’s new consumption curve, so that a rise in the current contracted power can mitigate the cost associated with what would be power excess. However, in order to develop a capacity optimisation, the quarter-hourly consumption curve for the last 12 months is generally used as the basis for analysis. It is difficult to optimise power considering consumption in a year 2020 characterised by many deviations in consumption with respect to normal situations. It should also be emphasised that, in general, power changes are made only once a year, so that forecasts and decisions resulting from an optimisation analysis are charged to the customer until the following year. This means that it is important to have a clear projection of consumption in order to be able to optimally choose the power to be contracted one year from now. It should also be borne in mind that, as mentioned above, the cost of the charges, which are the responsibility of the Ministry, has not yet been published, so it is difficult to estimate the real impact of the power term in the absence of information.

THE INCOGNITA OF 3.X TARIFFS

As anticipated in a previous blog, one of the changes envisaged with the entry into force of Circular 3/2020 is the redefinition of the 3.X tariff. In Resolution RAP/DE/003/20, these are also adapted to the new distribution of periods, becoming tariffs with 6 periods for both energy and power terms.

Figure 4: Redefinition of the tariff scheme according to Circular 3/2020. Source: El Periódico de la Energía.

The difficulty in performing an impact for these tariffs is the lack of remote metering, especially for low voltage tariffs 3.0, where until now it was not necessary to install metering equipment.

Although the document specifies how the power and the relative tolls (capacity) will be adapted from 3 to 6 periods, no mention is made of how the prices for the energy part (commodity) will be applied. This will be suppliers homework: provide for 3.X, as well as 6.X tariffs, the new definition of energy prices to be applied according to the new distribution of periods, trying to minimise the impact for the consumer as much as possible.

WHAT ABOUT DOMESTIC TARIFFS?

2.X domestic tariffs are reduced from 6 to 1 type, called 2.0TD. Although this category will not be converted into 6 periods, changes are still foreseen for both energy and power components. In the end there will be 3 periods for the former and 2 for the latter. The novelty here is in the power component, where the consumer is offered the possibility of contracting two different powers throughout the day. Until now, in the domestic sector, a contracted power was defined and, if it was exceeded, the power control switch (ICP) would trip, momentarily cutting off the electricity supply. With the new 2.0TD tariff, by contracting different powers for each period, the consumer can program the operation of electrical appliances when the contracted power is higher. In this way, they would pay a lower power cost during off-peak hours and maintain a higher power during peak hours, avoiding the inconvenience of a momentary power cut.

CAPACITIVE REACTIVE PENALTY

Following the publication of Circular 3/2020, in recent months there has been much debate about the new concept of penalty for capacitive power in period 6, related to the 6.X tariffs. Up to now, reactive power penalties have been applied considering only inductive reactive power. On the contrary, Circular 3/2020 also indicates a penalty for capacitive reactive energy of 0.05 €/kVArh applicable to the hours in P6 in which a power factor greater than 0.98 has not been maintained.

However, Resolution RAP/DE/003/20 does not mention this penalty, so the capacitive reactive energy penalty also remains one of the pending issues for the CNMC’s work.

Finally, we share with you our vision and expectations:

  • Resolution RAP/DE/003/20 confirms many of the changes already advanced in the previous Circular 3/2020, although some aspects have been transferred with minor modifications.
  • It is still difficult to estimate the impact of these changes on consumers’ costs, as the publication of the charges and the definition of important details to be considered when carrying out a technical and economic impact study are still pending.
  • The changes are far-reaching and require considerable efforts on the part of suppliers, who must readapt all their systems and contracts in less than two months from the publication of the resolution. Some of them have already expressed their complaints, asking the CNMC to delay the entry into force of this regulation, so that they can adapt to the multitude of changes it entails. However, we believe that the date of application established will finally be the definitive one.
  • From Magnus we will remain attentive to the publication of the information pending to be defined so that we can have a complete view of the reform and convey the final impact for our clients as soon as possible.

Cristina Vitale | Energy Consultant

By | 2021-02-11T08:41:16+00:00 February 10th, 2021|Categories: Energy Markets, Energy Policies, Featured, Gas, M·Blog, Oil, Spain|Tags: , , |0 Comments

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