The Government has approved in the Council of Ministers a package of measures with which it intends to cushion the effect of the high price of electricity in the wholesale market.

The executive expects clients to pay an invoice similar to the one paid in 2018 by the end of 2021;

that is, about

600 euros per year

.

To do this, they will inject 900 million obtained by electricity companies as a result of this crisis.

The average low voltage consumer, according to government calculations, has 4.1 kilowatts of contracted power and a consumption of 2,500 kilowatt hours per year. In the scenario that they contemplate, at the end of the year it will pay about 600; something more if

the effect of inflation

is taken into account

, as Pedro Sánchez has already warned. Achieving this will mean reducing charges by 96% in the next three months.

Ministry sources explain that what these eight measures do is "distribute the effort among all in favor of the general interest." They are both temporary and structural tools of a social, economic and environmental dimension. They will be divided into five blocks: reinforcing the protection of vulnerable consumers, fiscal and sectoral measures to lower the bill, limit the rise in the regulated rate of natural gas, reform the electricity market by increasing the liquidity of forward markets and measures related to environment.

Some of these measures were already known and others were advanced by Pedro Sánchez in an interview on TVE. This is the case of fiscal ones, such as the temporary suspension of the sales tax on energy production, of 7%, which will last

until December 31, 2021

. Sánchez also advanced the reduction of the special tax on electricity (IEE), which goes from 5.11% to 0.5%. Both will have an immediate impact on the bill. The Royal Decree also recalls that it will be necessary to analyze the impact it will have on regional financing resources to see if it is necessary to take compensatory measures, since it affects the communities.

With regard to the redistribution of extraordinary profits from power companies - "they can afford it," said the president on public television - an

additional 900 million will

be injected

from broadcasting rights auctions

into the system to reduce charges. Ministerial sources recall that there are "more resources available from these auctions" and consider that it makes "all the sense" that they go to the electricity system. In any case, it will be a temporary measure.

The reduction in gas, the price of which is key in determining the wholesale market price, will also be temporary. The Ministry also aims to take "extraordinary actions" and redirect a "totally unexpected" profit to lower the charges. It will be taken based on a floor, 200 euros per megawatt hour -the average price of the Iberian system since it came into operation in 2017-, and an alpha factor of 0.9 will be included to increase proportionality.

In other words, the entire surcharge is not deducted, but

only 90%

and it will only affect the extraordinary income of inframarginal technologies, not emitters and without a regulated remuneration framework, which would be mainly nuclear, hydraulic that is not in a regime specific remuneration and renewables that are on the market and have not attended either the regulated frameworks or the most recent auctions.

Installations smaller than 10 megawatts will not be affected by the reduction.

This measure will apply until March 31, 2022, which is when the Government expects the price escalation to mitigate.

Minimum vital supply

The first block of measures, aimed at protecting vulnerable consumers from the consequences of energy poverty, sets up a figure that has been in the pipeline for a long time: the minimum vital supply.

This will be included in the electricity sector law and is defined as a power of basic comfort conditions, which would be

3.5 kilowatts

.

In addition, also with this idea of ​​protecting the most vulnerable, a precautionary principle will be applied and the period of time in which the power cut is not allowed from four to

six months

on the reliable notification of non-payment of the invoice.

On the other hand, with regard to the natural gas rate, a cap will be introduced in the methodology for calculating the TUR (rate of last resort). Thus, growth for this quarter and the first of 2022 is limited to 5% in each case. From the Ministry they explain that, if this measure is not taken, they would rise between 20% and 40% next quarter, which coincides with winter and its low temperatures.

In the block dedicated to the reform of the electricity market, the auctions of long-term energy purchase contracts will be activated, which will be articulated as an obligation to sell energy for the four dominant operators in generation (the list is articulated by the CNMC with annual character; currently they are Iberdrola, Endesa, EDP and Naturgy) and a right to attend these auctions as a buyer for direct consumers in the market (large groups that buy energy without the need for intermediaries), traders with a client portfolio (they cannot belong to to the main operators; the five largest companies) and the reference marketers.

The Royal Decree already announces an auction before the end of the year, with a generation capacity of 6.3% of the national generation.

Water law

Finally, a block is dedicated to the modification of the Water Law so that it includes criteria for the rational use of water resources. Thus, article 55.2 is modified to include new criteria in reservoirs of more than 50 cubic hectometres of total capacity (provided that their use is not supply, irrigation or other agricultural uses). The basin organization will set each hydrological year a series of variables (such as minimum or maximum flows or a minimum reserve that must remain in storage).

Finally, the operation of the regulated tariff (PVPC) will not be touched, at least for the moment, to link the price to energy cost futures

instead of to the wholesale market

, which, as these months has shown, is much more volatile.

However, it does convey a desire to reflect on the possibility of revising this formula.

The Ministry recognizes that the sector is prone to litigation, so it would not be surprising if the electricity companies took their own measures before the package.

In any case, they consider that it is legally robust, so they believe that these tools could not be overthrown.

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