state aid boosts gas bills as millions face market disruption
State support aimed at lowering natural gas bills has rattled the market. Regulators and managers have implemented subsidies that reduce what customers pay on regulated rates, triggering a surge of contract changes among households in recent months.
Large energy firms are now compelled to offer different regulated tariffs, known as tariffs of last resort (TUR). They confront an overwhelming wave of demand from customers eager to switch into regulated options. After years dominated by freely set market rates, driven by competition, the customer base for those rates has shrunk. Government-set prices are currently accompanied by substantial discounts.
During the peak of government aid, the four major groups operating regulated tariffs Naturgy, Endesa, Iberdrola and Total Energies have reported a sharp rise in customers. Internal data from El Periódico de España, part of the Prensa Ibérica group, indicates roughly 860,000 new TUR customers joined the regulated marketers in six months since last September. Records from the National Markets and Competition Commission (CNMC) show about 2.44 million TUR customers in February, up from 1.58 million last September.
Industry observers expect the rush to slow as winter ends and heating demand declines. But many in the gas sector believe one million customers could still leave the regulated market in the coming months, prompted by the shock of state aid.
company to company
Naturgy, the largest operator in the Spanish gas market, added 327,000 TUR customers to its portfolio since last summer. The company, led by Francisco Reynés, reported 190,000 TUR customers in the second half of 2022 and 137,000 more from January to February this year. In the two months of 2023 so far, Naturgy registered as many TUR transfers as in all of 2019, 2020, and 2021 combined.
Endesa has gained about 130,000 new regulated customers since last August, including more than 81,000 last year and 48,600 additional changes so far this year. Iberdrola confirms a gain of 259,000 regulated customers, a figure that will grow when February transfers are added to the period from late September to late January.
TotalEnergies is also seeing brisk growth in TUR customers, with 174,000 households benefiting since last summer. About 122,000 joined last year, with roughly 100,000 since September and 74,000 in the first two months of this year alone.
70% still on the free market
Despite the heavy switching activity, the free market remains far larger in terms of customer share. Gas rates in the free market are more expensive and have risen markedly in recent months. Today, more than 2.4 million households are on TUR, while roughly 5.7 million users remain in the free market, a sign that many still prefer market-driven prices despite volatility.
Only about 30% of users are protected by regulated rates that cap spikes. Free market rates are set by companies and reviewed periodically, while regulated tariffs are adjusted quarterly by the government based on international hydrocarbon prices. Even so, regulated increases have a maximum cap, limiting shares of risk for households.
In October, the government activated a package of measures intended to lower the price of regulated gas tariffs. This includes support for homes with central heating in communities facing affordability challenges, with roughly 5,000 neighborhoods participating by 2023. The plan aims to keep regulated gas tariffs within a controlled range for more than two million customers and to introduce new discounted rate options.
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