On the first part of this article we saw that we pay one of the highest bill on electricity in Europe.
We also analysed how the famous debt of the 30,000 million Euros in favour of the electricity companies was created and why we have a unique system for the electricity industry in the world.
We also discovered that the electric deficit is an example of how the confusion of public and private interests and an apprehensive double set of regulations misguided planning and a failed market can produce some disastrous results. Companies benefited at the expense of widespread over remunerations that has had the effect that now, consumers have to pay extremely expensive electricity which not so long ago had a reasonable price.
This article will centre on the history of why we are where we are…paying the most expensive electricity in Europe.
A brilliant idea!!
It all started when the Prime Minister Aznar in the year 2000 decided that the Spanish electricity user should not pay the electric companies the cost of electric production and accumulated a recognized debt, the difference between the amount invoiced and the real costs of electricity production.
At the time we Spaniards had to meet the Maastricht criteria for joining the Euro, and Spain could not allow inflation to rise more than the allowed rate. So all started as a mere accounting exercise adding the difference between what the electricity that consumers used and the amount that they paid. The difference was awed to the electric companies, that amount would gradually be charged to the public in the future. The invention worked: between 1997 and 2004 the electricity bill dropped 12%. In return, in 2002 there was more than 1,500 million Euros debt to the electrical system account.
Now you see it now you don’t…
Until 1997, the electricity price was set by the government and was set out with a differentiated cost for each type of electric power generated. But the Electricity Act which was adopted at the dawn of the first Aznar government created a wholesale market (“The pool”) which set the price of electricity for for all types of electric production. But other types of electricity generation technology joined the pool with rising costs so it was decided that the price of all electricity will be that marked by the latest type of technology i.e. the most expensive!!
That is, the cheaper production of some plants could charge much more expensive electricity and be compensated well above their actual costs.
And this is exactly what happens to nuclear power plants and hydroelectric plants, which have already paid their facilities and whose production costs had been amortized but their owners receive millions of Euros above their costs.
Is what is called “profits from heaven”, which according to different sources would be between 1,400 million and 4,000 million euros a year.
The monster they created.
Nevertheless this is just one of the extra costs as result of regulatory failures that assume the Spanish electricity system there is also at least 3,600 million euros more that the large companies received for the costs of “transition to the competition market”. Adding to that there is the 4,400 million that the users have paid since the eighties until last year. The so called nuclear moratorium, the inflationary effect on the money owed, and there is the quarterly price auction now in use.
The big deficit (or monster) grew and grew as electricity costs increased as it did… too much too quickly, and I am talking about “recognized costs” by the government, which does not mean they are necessarily the actual costs!!
The electrical industry has been characterized by the rapid development of new infrastructure or the compulsory inclusion of all kinds of items to the accepted rates.
And here is a funny one…
The electricity bill is composed of a component of energy production, which includes the costs of generating electricity at a price set on the wholesale market; and a second component which is the fees paid to have access to the grid system. Adding to that there is an aid for burning domestic coal rather than importing cheaper coal from abroad (about 600 million of Euros per year), the costs of subsidising electricity to all the Spanish islands (about 1,800 million), The “Interruption fee”. And here is a funny one… an aid of about 750 million per year to the large industries in case they have to stop production in a peak of electricity demand, something that has never happened; the financial costs of the debt itself (about 2.700 million) ...
And there's even more…
Someone has to subsidise the electrical industry on the orgy of investment (about 70,000 million Euros) which served to double the installed capacity in Spain with the construction of dozens of new combined cycle plants which use natural gas and renewable energy in just a decade.
Today Spain has an installed capacity close to 100,000 MW, quite an excess considering that the peak demand stands at about 48,000 MW. But this crazy investments charade encouraged by the governments of José Luis Rodriguez Zapatero must also be paid. And that is what we do my friend, (you and I) every time we pay our electricity bill.