The next revolution of the electricity bill: a different price every 15 minutes and not every hour

In recent months the wholesale market of the electricity has been dialing historical highs and the crisis has been worsening in recent weeks due to the impact on energy prices of Russia’s military invasion of Ukraine. Record after record, citizens have made it visible that the price of the electricity market changes at different times of the day. The energy cost varies from hour to hour for millions of homes and that has been penetrating. Now, Red Eléctrica and OMIE are preparing to operate with different prices every 15 minutes and not every hour, as established by European regulations for all community electricity markets and others outside the EU but linked to the European system.

It wasn’t always like this. Until a few years ago, the wholesale electricity market – where generators, marketers and ‘traders’ buy and sell the electricity that will be consumed the next day – exclusively marked an average daily price.

It was on July 1, 2015 when different prices began to be marked at each hour of the day for customers covered by the regulated rate (today about 10 million households) and for consumers who buy electricity directly on the market.

The operator of the electrical system, Electric Networkadjusts the required electricity production and the expected consumption hour after hour and the manager of the Spanish electricity market (OMIE) matches prices based on supply and demand and the type of energy generated also every hour. At the request of the European Union, the electricity price will change even with shorter times. A profound change that promises to cause a new revolution in electricity bills.

Professionals in the Spanish electricity sector will begin to notice it imminently, in May, but it will take more time for customers to be directly affected by the new deadlines.

In just a few weeks, Red Eléctrica will begin to use the new 4th hour scheduling system (every 15 minutes) in its task of adjusting demand and supply to guarantee supply. The orders to balance production and consumption will shorten their terms and will be activated every fourth hour starting on May 24. It is only a first step and other technical services of the electrical system will continue to be reformed.

The national roadmap establishes that in October of next year periods of 15 minutes will also be used in the correction services for energy supply and demand deviations. Once the use of the four-hour periods in technical services has been completed, the system can now be activated to also set electricity prices in the wholesale market every 15 minutes and not every hour as before.

If the established deadlines are met, OMIE’s plans involve being able to establish prices every quarter of an hour at the beginning of 2024according to the latest documentation sent by the group to Market Agents Committee. By then there will no longer be 24 different prices each day, but instead there will be 96 different prices per day.

The operators of all the European electricity markets are already working on the design of the new algorithm that would allow prices to be matched every 15 minutes and also make adjustments between countries easily if some states begin to use quarter time slots and others are late and continue setting prices hourly.

The goal is to have the algorithm ready this year, next October, and then open a testing period to ensure that its operation is safe and reliable, sources from the electricity sector familiar with the process confirm to ‘El Periódico de España’.

The electricity market price -known as pool– directly conditions the invoice paid by the 10 million customers who are currently covered by the regulated rate of electricity or Voluntary Price for Small Consumers (PVPC), for which a different price is currently applied every hour for the energy component of the bill.

The 17 million customers with free market rates have stable prices and are not immediately affected by market movements, but they may be when their electricity company reviews the rates annually or biennially and in those reviews the evolution of the pool is the reference generally used.

Last summer, another legal change made many citizens aware that the price of electricity is different depending on the time at which it is consumed. On June 1, the Government and the National Commission for Markets and Competition (CNMC) reformed the electricity bill for all consumers -yes, for all; not only of households with a regulated rate- with the application of different prices in the regulated part of the receipt in different time slots, the hours with lower demand being cheaper and the hours in which greater consumption is concentrated more expensive.

The objective of the reform that entered into force in June with different hourly price ranges is to encourage customers to transfer part of their electricity consumption to times of lower simultaneous demand to avoid system saturation and make new investments unnecessary in expanding the infrastructures.

Then, different price ranges began to be applied in the regulated part of the receipt: off-peak hours (from 00:00 to 08:00), flat hours (from 08:00 to 10:00, from 14:00 to 18:00, and from 22:00 to 00:00) and Peak (from 10:00 a.m. to 2:00 p.m. and from 6:00 p.m. to 10:00 p.m.). That was on weekdays, because on weekends the whole day received the off-peak treatment.

With the entry into force of the new model of time slots, it did not take long for controversy and jokes to break out about the need for consumers to get up at dawn to turn on the washing machine or to iron in order to catch those hours of the day when the electricity was cheaper.