Understanding the PVPC Reform and Its Impact on Households
The electricity pricing reform introduces the Voluntary Price for Small Consumers (PVPC), a rate that covers about 8.5 million households, roughly one third of domestic consumers. It will take effect on Monday, January 1, as reported by the Ministry of Ecological Transition and Demographic Challenge.
In place of the prior calculation method established by Law 24/2013 on the Electricity Sector and regulated by Royal Decree 216/2014, the PVPC formula will now blend long term price signals with the daily wholesale market. To support this transition, reference marketers have been purchasing a portion of energy in cash that the PVPC tariff will use in 2024 since July 1. This setup aims to align consumer charges with broader market dynamics while maintaining a clear pricing framework for small customers [Ministry of Ecological Transition].
This reform aims to bring more stability to household bills by partially indexing them to futures markets, incorporating futures references into the pricing structure. Essentially, prices for future deliveries are considered when drafting current purchase and sale contracts, a mechanism that tends to smooth out final charges for consumers [Ministry of Ecological Transition].
The inclusion of futures will occur gradually. In 2024 the price composition will be 25% based on future prices and 75% on the daily price. In 2025 the mix becomes 40% future price and 60% daily price, and by 2026 the breakdown will be 45% daily market price and 55% future price. This approach does not alter the price signals aimed at guiding consumption toward lower-demand periods and ensures predictability for households [Ministry of Ecological Transition].
As a result, the government is phasing out the traditional PVPC as it has been known since 2024. The move follows issues in what were known as the Brave tenders, long regarded as the cheapest option for small consumers since their introduction and tied to daily prices of the Iberian Market for Energy (Mibel), which began in 2014 under a reform enacted by the previous administration [Ministry of Ecological Transition].
The cabinet, under Teresa Ribera, argued that the change would promote greater reliance on futures contracts and deliver more stability to household bills and micro-SMEs. It also seeks to reduce sharp fluctuations seen in recent years, especially after the early months of the Ukraine conflict. These measures align with a broader effort to safeguard affordability while supporting market participants in locking in returns over longer horizons [Ministry of Ecological Transition].
The reform also encourages producers and marketers to secure energy through long term contracts, promoting greater certainty about return on investment. The expectation is that this shift will lead to steadier bills for consumers over time, reducing the exposure to sudden price swings and giving households a clearer budget outlook [Ministry of Ecological Transition].
The transition will occur automatically. Consumers do not need to take action, and electricity companies will apply the new energy price formula to bills starting January 1, ensuring a smooth switch for all affected households [Ministry of Ecological Transition].
PVPC Consumers Saw Notable Savings in 2023
Even as wholesale prices remained high in 2023, protective measures introduced after the Ukraine conflict, including the Iberian Solution, contributed to a 40.5% year-on-year decline in typical bills. Ministry estimates assume an average household consumption of 2,400 kWh per year and contracted power of 4.11 kW, illustrating how policy tools helped soften the impact on families [Ministry of Ecological Transition].
Consequently, the monthly electricity bill for 2022 averaged 75.58 euros, while in 2023 it dropped to 44.97 euros, signaling meaningful relief for many households amid volatile energy markets [Ministry of Ecological Transition].
To benefit from the electric social bonus, households must remain in the regulated market. This safeguard currently covers more than 1.5 million homes, protecting nearly four million people and helping ensure basic energy access for vulnerable groups [Ministry of Ecological Transition].
The energy price impact from the Ukraine war was managed through a framework that categorized consumers as vulnerable and severely vulnerable. The Council of Ministers provisionally approved a third category under Royal Decree-Law 18/2022. Low-income working households qualify for a 40 percent discount on their electricity bills, a measure designed to preserve affordability for those most at risk [Ministry of Ecological Transition].
Recent royal decrees extended the discounts for sensitive and severely sensitive consumers, boosting the level of relief for these groups. The extended measures run through mid-2024 and remain part of the broader energy affordability strategy, balancing protection with market reform to stabilize household expenses over time [Ministry of Ecological Transition].