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What is this investment fund doing on my electricity bill?

2020-12-17 | Spain

The official message is that the Spanish government has forced energy companies to pay the costs of deploying renewable power sources and that the net result will be a 13% drop in the household price of electricity.

But there is something wrong. First of all, it is only 7 billion euros in contributions to a fund, when every day investments and bids are announced on a much larger scale for new infrastructures. For instance, just this week, the last bid for the production capacity of the Isolux solar park raised 1.5 billion from a Canadian fund. What is going to be paid which only costs 7 billion euros?

On the other hand, simultaneously, the government approved the famous Electro-intensive Consumer Statute, a subsidy to the big industry via electric power prices. Industrial giants will receive a discount of up to 85% on the fixed part of the power bill. Precisely the part that included their contribution to the incentives for renewables.

What costs are we actually talking about?

We are at the start of the energetic transition. That is, the process by which the electric system generation sources will become predominantly clean (a term which includes, paradoxically, nuclear power). The main way to boost the process is to auction an increasing amount of renewable production to the grid over the next five years. In these events what is auctioned is installed power: the owners of plants and production plants bid the price they are willing to charge the power grid for the energy provided by their plants, whoever offers lower prices will place their own production first. The auctions have specific adjusters for each system - a MegaWatt produced with solar energy does not cost the same as one produced with wind energy and they are complemented with a series of incentives that are nothing but specific aid for each type of production. For example, as the electricity produced by solar panels is more expensive, in order to produce an economic profit comparable to that of other sources for investors, the installation is subsidized ... thus reducing the cost of investment and the return times from the beginning.

As these are medium and long term investments, the government tries to provide a stable framework allowing investors to calculate costs without risk in order to mobilize sufficient amounts. In other words, it is committed to ensuring profitability, incorporating adjustments (new subsidies) that, in view of the results of the auctions, increase the profit of capital. These adjustments can reach 25% in wind and 5% in solar power.

In short: the market price of electrical power for the distributors is the result of an auction between producers -which is largely dominated by the same large electrical and power companies- which is then corrected at source by subsidies for the installation of plants and power stations and on the results by direct budgetary subsidies. The government thus ensures that producing clean energy is profitable for investors to the extent that they provide sufficient funds for the production park to be as large as previously decided and shaped by the government in its negotiations with the oligopoly. This is what the market is about under state capitalism, nothing new.

What has the government actually done?

As we have seen, all this festival of aid and adjustments includes a part coming from taxes and which is decided according to the prices achieved in each auction, and another part which is known previously: the aid for the installation of new plants and renewable plants. This part of installation aid is the famous 7,000 million that will be spent over the next 5 years and which until now was paid directly through the fixed part of the bill of companies and households. It is not, as we have been told, the cost of the shift in the production matrix, but what consumers pay additionally for these installation aids to be distributed.

Then... are we not going to pay for them now? No. That's not it, either. What the government has done is transfer them to a fund that will be filled by distributors in proportion to their sales. Power distributing companies see their costs rising and, presumably, will increase the price they charge their clients to maintain their own profits and the profitability of what they have invested in them. But beware, they will not distribute those costs in the same way as they have done up to now, nor among the same customers.

To begin with, the electro-intensive industry, the big consumers of electricity, is freed from paying for it. So we touch more among the rest. And to finish off, the marketers will stop charging it in the fixed fee and will start diluting it in the variable part, that is, to share it out according to consumption.

Who wins and who loses then?

The whole remains the same, but some will pay more and others will pay less, that is to say, the new move of the government has created a transfer of income.

From whom to whom? First of all from the entire group of consumers to the electro-intensive consumers, i.e. to the large processing industry.

Secondly, within the distributors, and given their charging systems, it reduces the price difference between the small distributors -which charge a fixed fee and the remainder at acquisition cost- and the distributors of the large electricity companies, that is, it favors the electricity oligopoly.

And thirdly, it also produces effects within consumers at the retail level: by predictably switching to consumption-based distribution. All non-intensive consumers will pay more, but not all will be harmed in the same way.

Among companies, service SMEs will be less affected than industrial SMEs and workshops.

And among domestic consumers, the household electricity bill will be even more regressive, affecting low incomes, mostly working families, more than high ones. Why? Because what the electricity bill represents over the total income of a family is greater in low income families, even if they consume a little less in absolute terms.

Summarizing: They have not spared us anything at all. On the contrary, the big industrial companies have been relieved of paying their share of those 7 billion and the electricity oligopoly gets some competitive advantage. Both are winners. Among those of us who will bear the cost in our household bills, the workers, especially precarious ones, and large families, will feel it more in our total budgets. Welcome to the first act of the Green Deal and what it is going to mean for us.