If you look at the price of electricity today hour by hour you will see that it is changing. The electricity market has a very peculiar operation, in which energy supply and demand must match perfectly. In this Evidence Network article we are going to explain how it works and what is the weight of renewable energies in the price of electricity.
How the price of electricity is determined
Light is a fundamental element in our lives. Nobody can conceive of arriving home and not being able to turn on the light or having the refrigerator stop working for a few hours. Therefore, it is important that There is enough energy throughout the electrical grid to meet demand. Since it is impossible to store so much energy, the electricity needed has to be generated immediately.
The Spanish Electrical Network, through complex algorithms and its extensive experience, is capable of predicting with great accuracy the amount of energy that will be needed hourly. This estimated demand is shared with the Iberian Market Operator of Spain (OMIE), who is in charge of regulating the purchase and sale of energy.
Energy generators, such as hydroelectric plants, nuclear plants or thermal plants, set a price for the energy they will produce every hour and the OMIE is in charge of purchasing this energy, starting with the cheapest, until the demand is covered. The market is of the marginalist type, that is, the The price at which all energy is sold is the price set by the most expensive energy. that is needed.
Example of how the price of electricity is marked today hour by hour
To better understand how the price of electricity is determined, we are going to use a very simplified example. Suppose it is estimated that 100 MWh is needed by 8 in the morning.
- Wind energy supplies 30 MWh at €10/MWh
- Hydropower can give 25 MWh at €20/MWh
- Solar energy provides another 25 MWh at €25/MWh
- With nuclear energy, 20 MWh is generated at €35/MWh
- Combined cycle plants could produce 10 MWh at €50/MWh
Since only 100MWh is needed, we are buying energy starting with wind, which is the cheapest, until we reach nuclear, which is what allows us to reach 100MWh. Since the price of nuclear energy is €35/MWh, the price of all electricity for 8 in the morning is €35/MWh.
You can check the price of electricity today hour by real time at this link.
How important are renewable energies today?
Renewable energies are gaining more and more prominence in the energy mix. In recent years, energy generated by renewable sources has accounted for around 45% of all energy produced, even reaching 50.4% in 2023.
Spain has a highly developed renewable energy industry, especially when it comes to wind and solar energy. Not for nothing, Spain is the country in Europe that receives the most hours of sunshine and is located in a privileged position to also take advantage of the Atlantic storms.
Renewable energies allow us to generate energy very cheaplywhich has an impact on the bills of many households. However, They are also very variable. climatic conditions can give very high production peaksin which the price of electricity can reach €0/MWh, or also go through periods in which it is barely produced and other energy sources have to be resorted to.
The future of renewable energies
Throughout this decade, renewable energy sources are expected to have an increasingly greater weight. Spain has sent a draft of the new National Integrated Energy and Climate Plan, which sets the objective of continuing to invest in these technologies until 81% of all electricity in the country is generated with renewable energy.
How the price of electricity is translated into the bill
We already know what the price of electricity is today hour by hour, but what really matters to us is knowing How does it affect our electricity bill? at the end of the month. It all depends on the type of contract you have with the marketer. In some of them, the price of electricity has a direct impact in what we will pay at the end of the month, while that in others the ups and downs will have no effect. These are the types of contracts:
Regulated market rates
The regulated market rate is called the Voluntary Price for the small Consumer and it is the one that offers the same price of electricity hour by hour as in the electricity market. It is therefore a fee quite volatile and with which it is impossible to determine How much will you pay for electricity at the end of the month? Only reference Retailers can offer this rate and you will find the same price in all of them.
Indexed rates
If we enter the free market, there is a type of rate that is very similar to PVPC. These are rates indexed to the market. In them, companies also use the price of electricity each hour. An average of all the electricity prices in that range will appear on the invoice to make it easier to calculate. In addition, a fixed monthly fee will also be charged, which is the company’s marketing margin.
The main question is whether it is worth contracting an indexed rate instead of a PVPC. Free market companies can offer discounts and other additional servicessuch as maintenance, which make their offers more attractive than those of the regulated market. They can even lower the price of power to try to be more competitive. Not all companies offer these types of rates, only some like TotalEnergies.
Rates with time discrimination
Time-sensitive tariffs have become very popular since energy prices skyrocketed. It is a tariff that offers three fixed prices for energy depending on the time of day (peak, flat and valley sections), as well as two prices for power (peak and valley). With this type of rates, households can try to take advantage of the hours when electricity is cheaper to reduce costs. Some of the best rates with time discrimination are:
Fixed price rates
The last type of rate is the one offered by a fixed price whatever the time of day. With these rates you will not notice at all the daily rises and falls in the price of electricity and you will be able to calculate approximately how much you will pay at the end of the month. Some of the best fixed price rates right now are:
If you want to read more articles similar to Renewable energies and the price of electricity, we recommend that you enter our Renewable energies category.
