Spain’s Regulated Electricity Tariff Is Being Reshaped for 2024–25
Spain is preparing a shift in how its regulated electricity tariff, known as PVPC, is calculated. The government has delayed the full implementation by about a year and is moving toward a pricing model that links more of the tariff to futures market dynamics rather than relying solely on the daily spot market. This reform, which was slated to start at the beginning of the year, is now expected to come into effect in 2024 under guidance from the Ministry for Ecological Transition.
Earlier in December, Spain’s National Markets and Competition Commission raised questions about the reform, suggesting it might not provide the right signals and could even push electricity prices higher. In response, the government signaled a willingness to review the proposal and then sent the draft to the Council of State on March 30, reflecting the urgency of advancing the plan. The Council has 15 working days to respond, after which the proposal may proceed to approval by the Council of Ministers when possible.
Once the implementation date arrives, the core framework is not expected to change drastically. The energy price component remains one of the four items on the electricity bill, alongside other charges and taxes. Rather than calculating the price solely from the daily market pool, the reform uses a blend that integrates futures market indicators. The new approach constructs a futures basket with 10 percent monthly, 36 percent quarterly, and 54 percent annual products. The transition will be gradual, advancing toward a reference that assigns 25 percent of the price to the futures basket in 2023, 40 percent in 2024, and 55 percent in 2025.
Practically speaking, the mechanism is designed to reduce day-to-day price volatility. It does not guarantee lower bills, but it can soften sharp spikes. Analyses from the CNMC and the government’s economic notes acknowledge that a price rise could still occur, though the plan aims for more stable outcomes over time compared with the prewar period. The ultimate effect will depend on how market signals and gas costs interact with the regulated component of the tariff.
The draft royal decree reiterates that since its inception in 2014, the PVPC has been marketed as one of the most competitive options for power supply. Yet this competitive edge has, at times, come with higher exposure to the daily market and a corresponding need for hedging instruments. The reform addresses these vulnerabilities in light of the price pressures driven by natural gas and its spillover into electricity costs.
In the broader context of European discussions, Spain and Portugal are collaborating with Brussels to manage the gas price cap and to reform the regulated tariff in a way that reduces dependence on the daily market moves. The European Commission examined Spain’s reform plan and noted that it aligns with its decision to support the Iberian mechanism while allowing time for national execution. The government intends to move forward with the reform once the gas cap framework is extended beyond its current term, anticipated to end on December 31 of the stated period.
The new tariff offer will target local consumers and very small businesses first. Previously, PVPC contracts were restricted to systems with under 10 kilowatts of power. Now, small and medium-sized enterprises with existing contracts that do not meet PVPC criteria as of January 1, 2024 will retain their current rate until the contract reaches its expiry date. This staged approach helps ensure continuity while the market adjusts to the new structure.
Additionally, the reform includes a social rate component designed to shield vulnerable consumers. This element will be financed by the industry as a whole, with contributions from manufacturers, shippers, distributors, and marketers, alongside direct consumer obligations. The objective is to balance social protection with a sustainable financing model while integrating the cost into the PVPC framework.