utility costs

Consumers opt for bulk energy buys

Some of Spain's electricty users are about to hold an auction with power companies They want to bring down their bills, but will the big players respond?

Spaniards are third on the list of Europeans who pay the most for their electricity, according to Eurostat.
Spaniards are third on the list of Europeans who pay the most for their electricity, according to Eurostat.vetta villselarep (getty)

Since January 1, 2003, all electricity users in Spain have been able to choose their supplier. The change marked the first step in a long process of liberalizing the energy sector - a process that is still underway, and that, in theory, should have led to cheaper electricity bills by now. The idea was that by encouraging competition between the main electricity companies, as happened in the telecoms sector, these companies would bring prices down in order to attract customers. Instead, a decade later, electricity is more expensive than ever, and consumers have no idea how the energy market works. According to a survey by Spain's Organization of Consumers and Users (OCU), electricity costs have risen by 60 percent since 2007. And on Tuesday, news broke that consumers would be looking at yet another rise in their electricity bill in the fourth quarter of this year, of 3.1 percent.

The European Union's statistics office, Eurostat, says that Spain's electricity is the third-most-expensive in Europe. And as such, consumers are finally beginning to respond.

Last week, the OCU launched an initiative that will allow customers to pool their resources to buy electricity, bringing down the cost of their bill in the process. The idea, which has a number of precedents in Europe, is to form a large consumer group to buy energy at bulk prices, negotiating the price directly with producers and distributors. The theory is that the more energy is bought, the cheaper it is. Until October 14, anybody, whether or not they are a member of the OCU, can join the group via www.quieropagarmenosluz.org.

Consumers don't understand the market, and power is more costly than ever

Two days after the deadline, the organization will hold an auction where distributors who want to supply energy to this group of consumers will bid to offer the lowest price. On November 4, consumers will be told the name of the winning company or companies (suppliers will be able to bid jointly to offer electricity and gas) and the details of the cost to each customer will be explained. Those in the scheme who think the price is right can accept, and then the OCU will close the deal.

Consumer organizations in the rest of Europe already have similar initiatives underway, many of which have proved to be very successful. In the Netherlands, where Consumentenbond was launched last year, 52,000 consumers managed to save themselves around 277 euros a year. In Belgium, the Tests-Achats organization attracted 152,000 people, most of whom saved around 130 euros on their electricity bill, and around 435 euros on their gas bill. In the United Kingdom, consumer watchdog Which? saved some 285,000 people around 258 euros a year, while in Portugal, the DECO consumer rights group achieved savings of between 25 and 80 euros for around 600,000 people.

Antonio Arranz, the OCU's energy expert, says he does not know how much money Spanish consumers might be able to save themselves if they sign up to the scheme: "It will depend on the number of people who join, as well as how much energy each of them uses." That said, he believes that the majority of those taking part will see an improvement on their current bills. "There are consumers at the moment who think they have got a good deal, but they are actually paying 25 percent more than with a regulated tariff."

Organizations in the rest of Europe have similar initiatives underway

So far Spain's electricity companies have not responded to the initiative, or even said whether they are prepared to bid in the auction. Endesa, one of the five big players that dominate Spain's energy market, bid in the Portuguese auction and won, but is yet to decide if it will repeat the process in Spain.

"We are not ruling anything out, but Spain and Portugal's markets are very different, and we would have to decide whether it's worth our while competing in this auction," say sources at Endesa. The National Association of Energy Savings and Efficiency (Anae), which was set up to help consumers club together to bring down the cost of their energy and water bills, has been working on a similar proposal. "Previous initiatives in Germany, the United Kingdom, and more recently in Portugal, have encouraged us to try to introduce change in Spain. The National Energy Commission has given us the green light, and now we are waiting for the Industry Ministry's assessment," says spokesman Francisco Valverde. Anae still hasn't decided when it will launch the initiative.

Can this kind of scheme really bring down the cost of electricity? To begin with, they can certainly encourage consumers to leave the government regulated Tariff of Last Resource (TUR) for consumers with less than 10 kilowatts, and to join the free market, a step that only 30 percent of consumers have taken. The savings to be made by doing so are as little as 12 euros a year, according to the National Energy Commission's figures.

The green suppliers say that their market share is growing rapidly

Spain's consumer groups say that if bigger savings were available, more customers would be inclined to make the move, thus prompting the distributors to compete with each other. This is also the view of Jorge Fabra, a former chief of the REE national grid, and now head of a group of economists working to change Spain's energy system. "These are schemes that can save people a few euros, but they do not get to the heart of the matter. I can't see them going anywhere, because the problem with Spain's electricity system is not the distributors, but the system itself," he says, describing it as a "Tower of Babel" that is hard to understand, and that, he says, produces major diagnostic errors. "The main issue here is not about more or less competition between suppliers; it's that the system doesn't distinguish between different sources of supply. The electricity that the hydroelectric and nuclear plants produce is much cheaper than coal or natural gas plants, but the companies sell the electricity at the same price, which means that some companies make a lot more money than they should," he explains. "But none of the reforms that have been undertaken so far by different governments have addressed this problem. There are a lot of business interests at stake."

Spain's utility companies say that the reason there is so little competition in the energy sector is that their margins are already very tight, and that the fixed part of the bill, which is set by the government, is the same for all companies, meaning they can only make savings in the way that they run their businesses: through administrative costs, lower wages, and more efficient management. Endesa says that the right to the TUR should be reduced to five kilowatts, a move that would bring more customers into the so-called free market. "As long as there is a tariff that the majority of domestic clients can choose, we will never see a truly competitive market," sources there say.

Green energy cooperatives - suppliers who are offering supposedly clean energy based on renewable sources - also want to change the rules. This summer, the government announced that it would be imposing taxes on households that produced their own electricity via solar panels or wind sources. The green suppliers say that their market share is growing rapidly thanks to their low prices.

The red tape and bureaucracy in the market keeps
newcomers out

Som Energía, for example, was set up in the Catalan province of Girona at the end of 2010. The idea was to bring together thousands of households and to change the current energy model by working in unison to create a system based 100 percent on renewables. The organization's founders took their inspiration from other European countries that had already tried similar schemes. Since September 2011, Som Energía has been selling officially approved green energy that it buys in bulk and sells on to its 7,000 or so customers. But there are many entry barriers to the Spanish energy market, due mainly to its legal complexity and red tape, which keeps newcomers out.

"We have faced the same problems as anybody else. The important thing here is for as many companies like us as possible to get involved in the energy market," say sources at Som Energía. Among its chief objectives is changing the energy market and informing clients about how it is arranged, as well as doing away with the many levels of bureaucracy involved.

Another new supplier, Zencer, is now operating in the resort town of Fuengirola, in Málaga. "I have wanted to do this for a long time," says Francisco Javier Porras, the company's founder and head. "One of the reasons I finally got involved was a dispute with the regional supplier, and the way that the company treated us." It was set up in 2011, but has only been operating since the beginning of the year, due to bureaucratic procedures. This summer it offered its 100 or so partners a tariff that is 20-percent cheaper than the TUR.

The powers that be do not want to carry out an audit of the system"

There are several ways to bring down the cost of your electricity bill: either by a wholesale change to the electricity system; or by individual initiatives by consumers. The first option would involve optimizing the costs of the system.

"It is hard to know the exact composition because the powers that be do not want to carry out an audit," say sources at Anae. At the end of June, Congress rejected a proposal by the United Left to carry out such a tariff audit. The government says that its overhaul of the system aims to address the shortfall created by the fact that earnings from taxes on the electricity system are smaller than the costs of regulated activities.

In May, the figure was 2.6 billion euros, according to the National Energy Commission. Reducing the cost of household bills can be done by investing in more efficient appliances such as fridges or washing machines, or by choosing a different contract model.

The majority of households have a TUR contract, meaning that they pay the same price regardless of the time of day they use their power. It is possible to contract a tariff that charges higher rates for use during the daytime: 14 hours of cheap electricity; 10 hours at a price slightly higher than the normal.

According to Anae, moving to such a tariff can easily bring savings of up to 15 percent in the cost of electricity, and even of up to 30 percent by changing our usage patterns, although this also depends on other factors.

All these consumer initiatives are being launched ahead of the full publication of data on the impact of the latest reforms of the electricity sector, which point to new price hikes.

Dutch energy collectives attract consumers


In November 2012, Dutch company Energiedirect.nl won the annual auction organized by the Consumentenbond consumer association to supply energy to a group of households. The idea of bringing together users to try to lower their gas and electricity bills originally came from another consumer rights group called Eigen Huis (Own Home, in Dutch). A year later, Consumentenbond launched its own scheme.

Users of the Prizewize scheme must consume less than 20,000 kilowatts of electricity a year, and no more than 10,000 cubic meters of gas. Prizewize compares the different offers made by suppliers to the organization, and then organizes the transfer to the winner of the bid.

A year after the two groups announced that they would be working together, there were already 57,000 customers associated with the collective.

"Prizewize first provided the technical support allowing consumers to compare their energy bill online," says a spokesman. "We now coordinate offers, which are open to public and private suppliers, and only announce the winner at the end. This is how we keep prices low. Sometimes we have up to two auctions a year."

Inspired by its success in the Netherlands, the organization has extended its activities to the rest of the EU. At the end of 2012, it had 212,000 users in the Netherlands, Belgium and the United Kingdom.

In 2013 it entered the Spanish and Italian markets, where it hopes to attract some 400,000 participants. Critics of these auctions accuse the organizers of excessive charges levied on the winner, which can be up to 40 euros for each new client. These funds then go to the Consumentenbond, Eigen Huis, or the other companies in the sector. Officially, this is invested in "research and comparative studies in the market."

Joining an energy collective and choosing a cheaper supplier can be done online. Prizewize's website includes a copy of the new contract, which can be for gas and electricity. The consumer then indicates the number of people that are currently living in the household, and the average cost of utility bills. Finally, the consumer is given information about the current supplier, allowing a comparison with the costs of other competitors.

"The move from one company to another can be made online," says Prizewize.

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