David Robinson: "If the charges of a political nature are removed from the receipt, the price of electricity would drop 30%"

David Robinson is a Ph.D. in Economics from the University of Oxford and a Senior Research Fellow at the Oxford Institute for Energy Studies, an independent research center on economic and political issues in the energy sector.

His works cover the global energy scene but stand out as one of the greatest connoisseurs of the electricity sector at the European level.

Do current electricity prices threaten the ecological transition? Electricity plays a particularly important role in decarbonisation and the fight against climate change. For this reason, it is important that electricity prices do not discourage this decarbonisation by slowing down investment in heat pumps or in the electric car, for example. In Spain there is a very strong intervention by the Government on the functioning of the market and the setting of rates, but it is companies and consumers who invest. Month-to-month policy and subsidy changes carry regulatory uncertainty that can cool the investment needed. My proposal is to create a framework where investment is determined by consumer preferences and not by government intervention.

But if you give the consumer a choice, in many cases they will choose a price above 'green' ... Of course. The government plays an important role when investment costs are high, but when prices fall, there is less need for intervention. To speed up the price reduction, the government has to design markets and set tariffs that reduce the costs of the electricity system, and introduce a fiscal policy based on the "polluter pays" principle. It is also necessary to introduce mechanisms to compensate those most in need for the increase in their energy costs.

How do you assess the latest package of measures approved by Brussels to boost the ecological transition? I support the proposed measures that will be discussed over the next two years before having a final package. These are demanding measures and there will be fights in areas such as restricting fossil fuel cars and discussions about the extent to which countries with fewer resources can meet the targets. In this discussion, it will be necessary to find a balance between sufficient measures to meet the demanding objectives

and satisfy those most affected. The big question is: if these measures are not accepted, what is the alternative?

Why is the price of electricity in Spain traditionally one of the highest in Europe? A distinction must be made between the wholesale and the retail price. In the wholesale case, prices rise and fall consistently in European countries, but it responds to market conditions, lately the international gas price and the cost of CO2 emission rights. Both have risen a lot this year and this affects the market price at the European level; in summer, it also affects the increase in demand for heat and the increased use of air conditioning. Spain in this context of the wholesale market has one more reason to have higher prices, which is the 7% tax on electricity generation. In short, prices are going up all over Europe just like here. The main structural differences are 7% and the mix,which depends a lot on gas.

The other part of the problem is seen in the retail market, in the final prices paid by the consumer. These, in Spain, are high due to the combination of taxes and charges, such as

to finance economic, environmental and social policies such as support for renewables, cogeneration, waste, extra -peninsular and others. These taxes and fees are 45-50% of the residential consumer's bill. I call these taxes and charges the "government wedge." This is also a problem in other European countries such as

If one looks for an explanation for the high prices, it is not so much in the wholesale market, but in other concepts that are determined by the Government. In the US, these public policies are not financed through the electricity tariff, but largely through taxes. This leads to cheaper electricity. We must ask ourselves if in a context of decarbonization these policies have to be financed by the State.

How can the bill be made cheaper? The most important element in the electricity price in Spain is that public policies are financed through the electricity tariff. This hurts electricity consumption and makes electrifying and decarbonizing more difficult. It would be optimal to pass charges to the State Budget, avoiding distortions caused in decisions. An alternative is the

, which has recently begun its parliamentary processing as a bill. It is not optimal because it does not remove these charges and passes them to the Budgets. However, it distributes most of the charges among all energy carriers, lowering the cost of electricity and increasing gas and oil prices. A second idea of ​​the Government is to cut the remuneration of electricity companies (the so-called "CO2 dividend" received by nuclear, hydraulic and wind installations prior to 2005). But that creates uncertainty and sends a signal of regulatory and political risk that can raise the cost of capital and cool the investment needed to achieve decarbonization goals. Is lowering taxes like the recently approved VAT a good solution? Are they temporary solutions? .If we move to the Budget the charges of a political nature and the Generation Tax of 7%, we can permanently lower the price for consumers by 30%. The problem is that the Government does not want more costs in the Budgets. The ideal would be to do it spread over several years. Does the new structure of charges and tolls make sense that pushes to displace the consumption of families at dawn or weekends? Reading the comments of consumer associations it is evident that the introduction of the new rate has been very poorly communicated. But there is a positive element. In other countries there is a tendency to do this: signal consumers to consume when the cost of the system is lower. When there is no network congestion, its use does not introduce management costs,nor the possibility of having to expand the network by investing in the system. Giving these signals to consumers makes sense and I would say it is positive. There is a fundamental but: the famous problem of the charges is involved in the rates. If at rush hour the rate is very high, this is due to political office. The consumer can pay less if they consume at peak times, but the charges represent fixed costs for the system and would have to be recovered in another way. The problem, perhaps, is that 80% of consumers still do not understand their receipt ... Invoices can be greatly improved. It is important to recognize that despite all the confusion, there are only three cost elements: energy (produced in the wholesale market and sold by trader), regulated networks (transmission and distribution), and taxes and charges.I believe that consumers should know that almost half of the bill (the government wedge) is due to government decisions and more than 70% if the regulated remuneration of the networks is also included. Will the ecological transition be expensive for families? In the medium and long term, the price of electricity will become cheaper on average, but the wholesale price will be volatile. My vision of the sector is that in the next fifteen years, the development of a "double market" can be expected and should be encouraged: one that corresponds to renewable energies that are sold to final consumers at stable and relatively low prices, reflecting the average costs of these technologies; and the other, a "marginalist" short-term marketIt reflects the volatility of fossil technologies and the cost of CO2 emissions that will continue to rise. The Government could propose this design as an alternative to the current marginalist market. In the coming years, the system will have additional investment costs (generation, networks, storage) that can drive up prices. But there are several reasons to expect a reduction in electricity prices in the medium term. The first is the expectation - both for economic logic and for meeting political commitments - of significant investments in renewable energies that produce electricity at a lower cost than fossil plants. Second, we are going to have a much greater volume of light passing through the networks.Greater use could help to better distribute its cost if the use of the networks is spread over different parts of the day. Third, the charges will gradually disappear. They are more than 10,000 million euros a year. It is 25% of the total cost of the system. This will cushion the increase in investment. The support of Brussels will also be relevant, which will help finance projects through European funds and not through the tariff. In addition, electrical appliances will be more efficient and less energy can be consumed; more electricity, but much less fuel derived from oil and natural gas. This week the wholesale market has beaten its record price ...Do we have to get used to this volatility? The vast majority of domestic and industrial clients have the trader manage the risk of volatility with fixed prices. The current price reflects the cost of gas or CO2 combined cycles. Over time, the plants will be almost all renewable, with a fixed and little variable cost. The current market is not designed for this and for this reason I have proposed the "double market". Was it a good idea to link the price of the regulated PVPC tariff to the wholesale market? It was another communication problem. It was said that it was the best there was, without explaining the risks. I don't know of any country where this happens like this. As an option it is fine, but you do not have to prioritize it by default.Can Spain become a global energy power with the installation of renewables? The opportunities are important. Spain can go from being a country with high energy costs to being a renewable energy powerhouse with the cheapest electricity in the EU. Not only to lower the bill, but also because it opens the opportunity to create new businesses such as green hydrogen -which will be very important for sectors with electrification problems-, and others such as demand management with the help of aggregators.but also because it opens the opportunity to create new businesses such as green hydrogen -which will be very important for sectors with electrification problems-, and others such as demand management with the help of aggregators.but also because it opens the opportunity to create new businesses such as green hydrogen -which will be very important for sectors with electrification problems-, and others such as demand management with the help of aggregators.

If Spain fails, it would be because, among other reasons, it cannot lower energy prices and this generates a populism opposed to the energy transition, as happened in France with the "yellow vests".

You have to have a broad political and social consensus, which does not currently exist.

The Climate Change Law did not have an absolute majority in congress and that sends negative signals to the investment world and to society.

There is also no consensus on the investments to be made with European funds.

Consensus between all levels of government, investors and civil society is essential ...

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