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Endesa - Electricity, Gas, People

Advantages and disadvantages of the regulated electricity market

In Spain, when contracting an electricity programme there are two main options: free market or regulated market. We explore the pros and cons of the regulated market so you can make your decision freely.

The two big differences between the regulated and the free market

Before going into the advantages and disadvantages of the regulated market, it is important to understand its differences from the free market.

1. The price of electricity

  • Free market: for every kWh of electricity you consume and for every kW of power you contract, you will pay exactly your contract says. It is a stable price, not affected by cold waves or heat waves or unexpected issues in international energy markets.
  • Regulated market: prices go up and down constantly, every hour, every day of the year, based on auctions that are ruled by supply and demand. The price will drop when more energy is available (because the wind is strong, for example) and/or when less energy is being consumed (because temperatures are mild, for example). The price will go up when some power plants generate less power (hydraulic power plants if there is a drought, for instance) and/or when more energy is consumed (because there is a cold wave arrives, for example).

2. Competition between companies and rates

  • Free market: there is free competition between many companies that offer very different rates. Temporary deals, discounts, plans adapted to your electricity consumption pattern, etc., may apply.
  • Regulated market: there is only one rate, the PVPC,regardless of the time of day. Marketers on the regulated market will only be able to offer this rate, which will be identical for all companies.

Benefits of the regulated market

As mentioned above, when it comes to regulated rates the price varies throughout the day and is calculated hourly. This can be one benefit of the PVPC rate if you manage to adapt your consumption habits and consume more during the cheaper hours.

Although the regulated market is subject to constant swings, under normal conditions there is a fairly repetitive pattern:

  • between 12 p.m. and 9 p.m. the price is higher.
  • from 10 p.m. to 11 a.m. the price is much cheaper.

If you manage to adjust your consumption to these timeframes, this may decrease your electricity bill.

In addition, if you are considering requesting the Social Rate, you will be asked to first contract the PVPC rate, as it is the only one valid for the Rate Subsidy.

Cons of the regulated market

The main drawback of the regulated market is the inability to know your exact electricity rate this month or the following month. Swings in price are inevitable and frequent when weather conditions change (the amount of rain, strong or weak winds, temperatures too high or too low) or when international oil and gas prices vary.

There is another major and limiting drawback for homes that need more than 10 kW. This is not very common in homes, but it can happen if there is a large number of demanding appliances and if they need to be on at the same time. The problem here is that the regulated market is not available for these power ranges, so anyone who needs more than 10 kW of contracted power will have to go to the free market.

3 questions to choose between free and regulated market

Do you need to know exactly how much you are going to play for electricity?

The free market guarantees a stable price established by your contract, while the regulated market will present variations in rates.

Do you need more than 10 kW?

The regulated market is not available for these power ranges, so you need to go to the free market.

Do you want to request the Rate Subsidy?

In this case you need to be on the regulated market to apply for it.

Summary of PVPC pros and cons:

List of the advantages of electricity PVPC:

  • 1. Price controlled and regulated by the Government.
  • 2. Allows access to the Social Rate.

List of cons of electricity PVPC

  • 1. The price varies depending on the time of day.
  • 2. The prices fluctuate based on supply and demand.
  • 3. No discounts or promotions apply.
  • 4. Not available for power ranges greater than 10kW.