Government subsidies to lower the natural gas bill for millions of households have caused a shock and have broken the market. The subsidies are serving to reduce the bill of customers with regulated gas tariffs by 40% and have generated a historic commercial turnaround in recent months with almost one million customers changing their contract. However, they are still in the minority and less than a third of all customers have already opted for regulated tariffs.
The large energy companies obliged to offer the different regulated tariffs (known as tariffs of last resort, TUR) are responding to a veritable flood of requests to switch to the regulated business - whose price is set by the Government and to which it is currently applying large reductions - after years in which these tariffs had a dwindling customer base while the number of users of the free market tariffs - with a price freely set by the companies - was growing.
The four large energy groups with regulated tariffs(Naturgy, Endesa, Iberdrola and Totalenergies) have added some 900,000 new customers to their last resort suppliers in just six months. From 1.58 million TUR customers last September, by the end of February they had reached 2.5 million with regulated tariffs, according to data made public by the Ministry for Ecological Transition.
Despite the massive transfer, the number of customers on free market gas tariffs is still much higher, despite the fact that they are more expensive and have seen sharp rises in recent winter months. At present, some 5.7 million users remain in the free market. That is, barely 30% of all users have the tariff protected against sharp rises and which is currently cheaper than all free market tariffs, as confirmed by the price comparator of the National Commission for Markets and Competition (CNMC).
Not knowing what tariff you have
The energy companies themselves acknowledge that customers' lack of knowledge about the different market options is the main reason why many of them keep their tariffs despite market fluctuations. The sector points out that the arrival of high bills in the last winter months has been the trigger for many contract changes.
More than 62% of customers admit not knowing which gas tariff they have contracted at home and more than 67% admit not knowing the differences between regulated and free market tariffs, according to data from the latest CNMC Household Panel, corresponding to mid-2022, when the energy crisis had already lasted almost a year.
Free market tariffs are set freely by the companies and are revised periodically, while regulated business tariffs are set quarterly by the Government based on the evolution of international hydrocarbon prices, but increases have been capped since last year.
Subsidized gas tariffs
Last October, the Government launched a package of millionaire measures as part of the More Energy Security Plan - the contingency plan demanded by Brussels to the member states to combat the energy crisis - which contemplated limiting by law the increases that can be applied to customers with regulated gas tariffs until the end of 2023 and the creation of a new type of reduced tariff for households with central heating in their community of neighbors.
According to the Government's calculations, the cap placed on tariff increases and the reduction in VAT applied to natural gas for small consumers has served to reduce by 41% the amount of the bills of TUR 1 customers ( those with a consumption of less than 5,000 kilowatt hours per year) and by 37% in the case of TUR 2 (for those who consume between 5,000 and 15,000 kWh).
As part of the contingency plan of energy measures, the Government has also created a new type of regulated gas tariff which will be available to communities of neighbors who have central heating -until now they could not benefit from it because they exceeded the maximum permitted consumption- and which in practice will serve to reduce the bill of households that contract it by around 50%. According to the latest data provided by the Ministry of Teresa Ribera, barely 5,000 communities of neighbors had taken advantage of the new tariff.
500 M to cover the hole
The Government covers with public budget the millionaire hole that these measures will cause in the accounts of the Spanish gas system, assuming the cost of the reduction applied to about 2.5 million customers. The public contribution required to subsidize regulated gas tariffs already amounts to slightly more than 500 million euros from October to the end of March, according to the coinciding calculations of several sources in the energy sector.
The Ministry for Ecological Transition, headed by Vice-President Teresa Ribera, has an exceptional credit of 3,000 million euros to cover the cost of these measures throughout this year, but the Government guarantees that it will allocate all the public money necessary to cover their cost.