With the new tariff structure for Spanish electricity consumers being announced by the CNMC few weeks ago, the landscape of the energy market is about to change (once again).
The success of these measures depends on the evolution of a love – hate relationship: that between the consumers and the electricity retailers (suppliers).
Which of the two actors are more prepared for these changes and what does it mean for their operation and costs?
How will it affect them, how are they expected to react and what should we expect down the road?
* What do the new tariffs mean for the small consumers (<=15 kW)?
Changing from two (2) to three (3) periods during the day (peak, normal and valley), which will also vary based on the day of the week (distinction between weekdays and weekends), as well as seasonally, for the instant power element of the bill.
Furthermore, the regulation will introduce variable tariffs for distribution and transmission charges (based on time/period and geography).
Finally, for bigger consumers with contracted power of more than 15 kW, six (6) time periods are defined.
A more detailed explanation by CNMC can be found here: https://blog.cnmc.es/2020/01/24/nueva-factura-luz-horarios/
Therefore, the consumers will be receiving price signals, which will more accurately reflect the demand for electricity in the network and could incentivize them to reduce their electricity costs by adapting their electricity consumption on the hours of low demand and hence, prices.
* What do the new tariffs mean for the retailers?
Then, there is the other part of the equation: the electricity suppliers (aka. retailers). These new parameters will affect the commercial strategy of retailers, in terms of customer acquisition, risk evaluation, cost structure and their offers to final consumers.
The opportunity for more personalized offers to consumers, can become a strategic competitive advantage in the customer acquisition race, in a the liberalized retail market.
* How will this relationship evolve?
The new tariffs have the potential of creating a blue ocean in the electricity retail sector. Opportunities for new business models, personalized offers to consumers, increased competition and increased engagement of final consumers with the energy market.
However, a big bet is whether the consumers will be able to understand the potential benefits in a more complex environment than today; and whether these new models and services will be enough to engage and enforce / regain the trust of the final consumers.
In order to deal with this problem, energy data and exchange of information is – once again – the holly grail, for engaging consumers and create the environment of trust and transparency that will be required.
* So, what to expect in the future?
One thing is for sure: the competition is on!
We expect that retailers with ambition to capture a bigger market share by improving the fidelity and trust of consumers, will be the first to innovate in the space and adopt consumer-centric business models and offers. However, the response by the consumers will depend not only on the benefits they will reap from these offers, but also on the simplification of their interactions the exchange of services and information (i.e. data).
At the same time, there is an important parameter, which is yet to be clarified: the definition of the billing periods for the instantaneous power (which constitute approx. 1/3 of the electricity price) and the methodology for calculating charges and costs, that the Spanish government must approve.
Last but not least, these regulations will also affect the self-consumption market and more specifically, the compensation – and hence, the financial return – of self-consumption facilities.
The application of this new methodology requires distributors and retailers to adapt before November 1, and its implementation will be more or less immediate – depending on whether the Government has ready the methodology by which the charges are established. A critical topic, which should be followed and – of course – we will write about at that time.