The current situation

To be honest, our electricity bill isn’t that eye-watering. It’s dead easy to change supplier in Spain, as I suspect it is in most of Europe. A local distribution company maintains the infrastructure that brings power to the house, but you can buy that electricity from any number of retailers. How they pay each other is no concern of mine.

Since we arrived, we’ve usually bought our electricity from a firm called Iberdrola. We’ve had lots of different plans with them – a fixed rate for every hour, three separate tariffs at different times of day, others with high and low-cost periods, and so on. Again, I suspect this sounds similar to anywhere else on the continent.

Iberdrola is an electricity producer. It owns nuclear power plants, hydroelectric stations, and wind and solar farms, among other things. There aren’t actually that many power generators in Spain. Once electricity is generated, it can be sold on the wholesale market, directly to large users, or through one of the two domestic markets for homes and small businesses. These two are the regulated and the free market. The two are legally separate, but big energy groups such as Iberdrola generally have companies operating in both.

It’s in the free market that there is a wealth of offers from dozens of different companies. Retailers buy electricity through the daily wholesale market, run by an operator called OMIE, or through private contracts with big producers such as Iberdrola. Once they have bought the electricity, they package it into various consumer plans and compete for customers. So a household might buy electricity from Holaluz, PepeEnergy, or BingBong Power. The electricity itself arrives through the same national grid, along the same wires, although the retailer may have bought its supply through different contracts or on the wholesale market.

The other domestic market is the regulated market, generally known as PVPC. There are just four suppliers in this market - group like Repsol, Endesa and Iberdrola though the company names are things like Curenergía and Régsiti. The energy price in this market changes hour by hour and follows wholesale-market conditions, although it now includes mechanisms to avoid violent fluctuations. OMIE runs the daily auction electronically, matching offers to buy and sell electricity for each hour. I have no idea precisely how the bidding works, but I suspect there’s nobody talking quickly and no hammer involved. Instead, there is a sophisticated system matching bids and offers from buyers and sellers. The resulting price is generally set by the most expensive generation needed to meet demand at any particular time.

How electricity is generated varies enormously. Nuclear provides a steady, constant baseline, while hydroelectric power – a major player in Spain – can be flexible and brought into use when needed. Wind and solar are far less predictable. On a sunny, breezy day they come into their own, but on a dull, still afternoon Spain may need more electricity from hydroelectric reservoirs, interconnections with neighbouring countries, or gas-fired combined-cycle plants. Gas generation is often among the most expensive sources needed to meet demand, so its use can push up the market price.

For consumers in the regulated market, the hourly changes in price, driven by market forces, are reflected in the household bill. Elements of the bill also include some other arcane systems with strange factors built in, such as repaying government subsidies from years ago. At times the wholesale energy price can fall to zero, or even below it. Although the power is free that does not mean consumers get free days. There are still network charges, meter rental, taxes and other fixed costs. At other times, the energy itself costs an arm and a leg, and those fixed charges on top do not go away either.

For consumers in the free market there is usually a fixed price for any given circumstances with the price being reviewed annually. Retailers have to estimate how electricity prices will fluctuate so that the money they take through their contracts covers the cost of the electricity they buy and leaves them a profit. They sell contracts for electricity, and you, the consumer, try to find a package that gives you good value given your particular circumstances.

As domestic consumers, as always, the trick is to balance out a lot of different offers and try to work out which one is best for you – is it the one with low costs at night but high costs in the middle of the day, the one with a fixed hourly rate, or free power at the weekends? It’s the sort of thing that, if you were British, Martin Lewis would tell you about.

We’ve tried lots of packages in the free market, but a while ago I went back to the regulated market. It’s dead easy to change suppliers, and many contracts do not have any sort of permanency clause. I’m sure there are people who change their packages frequently to make use of all the introductory offers – a 25% discount for new customers for the first three months, free maintenance of home appliances for the first 12 months, and so on. I’m either too lazy or too rich to worry about such things, though I do try to pick sensibly.

One of the brilliant things about Spanish electricity bills is that if you download the PDF on your computer or phone, there is a link (and sometimes a QR code) to an official comparison site run by the national energy regulator, the Comisión Nacional de los Mercados y la Competencia, or CNMC. It does not rely on generic examples. Instead, it uses information from your bill – your contracted power, the exact number of days in the billing period and your actual consumption – to show comparable offers and calculates what they would have cost for that same use.

Even then, you have to be careful. I checked our last bill, which was about 86€ – lots of air conditioning in August – and it looked as though I could save around 20€ with the cheapest provider on the list. But when I looked in a bit more detail, nearly all the saving came from an introductory offer that was only good for the first three months. After that, the cheapest free-market deal was more expensive than our current regulated-market tariff. And thanks to Donald Trump’s adventure in Iran, it has not been a good month for electricity prices.

The comparison site also takes into account extra costs which affect your bill a lot. It does not give you a “what if” scenario without a bit of fiddling. Like all power bills, the energy you use is only one proportion of the total cost. There are network charges, electricity tax, VAT on top of that tax, meter rental and – the big thing in the Spanish system – the power capacity you contract.

Spanish homes have traditionally been underpowered - lots of homes in Culebrón only had 2.3 kW. As the modern world caught up, lots of people, fed up with tripping circuit breakers when turning on the iron and the oven at the same time, contracted more power. That contracted capacity has a substantial effect on the bill. The comparison website evaluates prices based on what you currently have; it does not, generally, show you the outcome of, say, reducing your supply from 5.75 kW to 4.6 kW, or going the other way from 5.75 kW to 6.9 kW.

It’s still pretty cool, though. Combine it with AI to handle some of that “what if” maths, and you may well save yourself a fair bit of cash.