By smartgrider In DEMAND SIDE MANAGEMENT Posted 2015-05-17


Market structureElectricity market is liberalized since 1997. The electrical grid belongs to the state. Utilities, distributed by geographical areas, are responsible for installing, operating and maintaining the grid, being smart metering deployment responsibility of them. The regulated transmission and distribution activities are remunerated administratively.
Number of retail customers 27.7 million
Electricity consumed- 2013246 TWh
Peak Demand for Power- 201340,277 MW
Net Revenue to Distribution Companies- 2013€ 5,000 million aprox
Distribution Network 447,658 km of overhead lines / 191,848 km of underground lines / There are 5 major distribution companies [98% of the distribution network]
Contact Mariano Gaudo Navarro Dipl.- Ing. mgaudo@gasnatural.com

Spain – Regional electricity system context



Traditionally, the management of demand in Spain has been performed by means of demand response techniques. The major one is known as interruptible power supply service and consists of a payment to intensive energy consumers (typically big industrials) for stopping their activity during electric system overloads. The power which can be managed by this service is around 2,220 MW.

The current context in Spain is characterized by the development of Smart Grids on two main axis: the on-going plan for the replacement of traditional meters by ends 2018 and the implementation of numerous R&D projects (BIDELEK Project, Smart City Barcelona, PRICE Project in Madrid & Guadalajara, STAR Project, Smart City Malaga, etc.). Under this scenario, in which Demand Side Management (DSM) acquires higher relevance, the Ministry of Industry, Tourism and Trade has decided to establish a new electricity tariff: the Voluntary Price for the Small Consumer (known as PVPC according to its acronym in Spanish). The aim of the PVPC is to provide consumers with a price signal that reflects the hourly variation of generation costs, contributing to DSM.

All low voltage (<1kV) residential consumers with contracted power lower or equal to 10 kW can chose to be billed according to the PVPC.


Objectives & Benefits

The main goal of the PVPC is to provide a new Time-Of-Use (TOU) electricity tariff for residential a consumer that reflects the hourly variation of generation costs. It has to be remarked that the use of time differentiating price signals is considered a crucial mechanism to increase consumers’ engagement in DSM programs. PVPC tariff is then intended to exploit the potential benefits of Demand Side Management, namely:

Benefits for the electric system:

  • Load-shifting,
  • Consumption decrease,
  • Load curve flattening by reducing peaks and filling valley periods.


Benefits for the consumer:

  • Decrease energy payments in the electricity bill for residential consumers.
  • Increase transparency of the electricity price calculation process: PVPC tariff is based on hourly market prices instead of auctions as it was established.
  • Decrease political influence in the price calculation process.
  • Contribute to the achievement of a more sustainable electric system.

Figure 1. Example of load curve in the Spanish electrical system. Difference between peaks and valley hours for a given day (17th December 2007).  Source: REE (Spanish TSO)


The Spanish electricity market for residential consumers

The cost of electricity in Spain is composed of:

  1. Generation costs
  2. Access fee and other regulated costs: This concept includes regulated costs required for power supply: transmission, distribution, subsidies to renewable energies and others.
  3. Retailers’ profit: the consumers have to pay the margin of retailers for the billing services.
  4. Taxes: includes electricity tax, VAT and also meter renting.

Figure 2. Bill composition for a residential consumer – July 2014

These costs are paid by residential consumers in their electricity bills by means of:

  • Fix capacity component (€/kW): dependent on maximum contracted power and
  • Volumetric component (€/kWh): proportional to energy consumption.

This tariff structure is established by the Spanish Government.

In July 2009, electricity retailing was liberalized and two types of retailers appeared: liberalized and regulated. Electricity prices of liberalized retailers are a consequence of market competition whereas prices of regulated retailers were established by means of quarterly auctions organized by the government. As a result of the auction, regulated retailers bought the electricity needed to supply their customers during the next three months and a fix price for the period was set.

All residential consumer with voltage below 1 kV and power lower or equal to 10 kW can chose being a ‘regulated’ or a ‘liberalized’ consumer.

Since 1st April 2014 a new methodology has been established by the Government to determine the electricity price of the regulated retailers: the Voluntary Price for the Small Consumer (known as PVPC). A Time-Of-Use tariff for residential consumers in Spain based on actual hourly market prices. PVPC methodology calculates a different price for every hour of volumetric energy component (€/kWh) of the electricity bill, which represents about 57% of the total cost for consumers.

In order to apply different hourly prices it is required to know the hourly consumption profile, which is only possible with a smart meter. However, not all the consumers in Spain have a smart meter yet. According to the on-going roll-out plan, 35% of consumers will have smart meter by starts 2015, being expected 100% by ends 2018.

The on-going replacement plan of the traditional meters will then require considering different billing methodologies:

  • If consumer has a smart meter: the energy component of the bill will be calculated using the registered hourly consumption and the hourly prices of the PVPC tariff.
  • If consumer does not have a smart meter: the actual consumption profile is unknown, thus the energy component will be determined considering an average consumption profile established by the Government.

The electricity hourly prices result of PVPC methodology are determined by the Spanish Transmission System Operator, who publishes them one day ahead on its website (http://www.esios.ree.es/web-publica/pvpc/), being available for consumers.

Figure 3. Example of hourly electricity prices (€/kWh) for end residential consumers in Spain subject to the PVPC tariff. Source: REE, Spanish TSO

As it can be seen in Figure 3, PVPC causes a significant volatility in end-consumer energy prices. In order to protect consumers against this volatility, Spanish Government has obliged regulated retailers to provide the consumer an alternative tariff based on a fixed annual price. Nevertheless it has allowed regulated retailers to fix this annual price freely as long as they are published, transparent and comparable. This possibility was introduced with the aim of providing consumers the option of avoiding the uncertainties of energy prices, although the global price may be higher.


Current Status & Results

Since 1st April 2014 a new electricity tariff, the PVPC, based on hourly energy prices is available and all ‘regulated’ consumers have been included by default. Nevertheless consumers can select a fixed price option of their regulated retailer and can also contract a liberalized one. In May 2014, over a total of 27.7 million of consumers in Spain, 25.5 million (92%) had right to PVPC. Among them, 14.4 million (57%) had actually selected it, while the rest (43%) was in a contract with a liberalized retailer. The average PVPC consumer incurs in 177 kWh of consumption and contracts 3.9 kW of capacity. The potential of Demand Side Management is then significant as around 40% of the power consumption in Spain is borne by residential customers below 15 kW.

Despite PVPC methodology is well defined it has not been applied yet. The Government of Spain has granted regulated retailers with a lag period to adapt to the new tariff model and has set the deadline for the application of the PVPC to the 1st April 2015. From this date on, regulated retailers will be obliged to charge the energy component of the electricity bill according to the hourly consumption registered by smart meters and the PVPC rates.

In parallel, different initiatives aiming to exploit the potential of PVPC tariff are being taken. In the case of DSOs, demonstration projects have analyzed the benefits of feedback systems on Demand Side Management. Retailers are also working to integrate consumption and price information to encourage customers to participate in DSM programs. In the near future PVPC tariff will allow analyzing the impact of giving more sophisticated price signals on the engagement on DSM programs.


Due to the recent implementation of PVPC tariff and the lag period granted to retailers, the results of DSM of residential Spanish consumers are not available. However, analyses will be conducted in the near future when smart meters will be in place.

The expected results of implementing PVPC tariff will be:

  • Lower electricity prices for residential consumers. Figure 4 shows a comparison of end consumer energy prices result of applying the PVPC methodology (green) and obtained through the previous auction process (red). Using data from July 2009 to October 2013, it can be extracted that prices outcome of the auction process would be 11% higher than those calculated with the PVPC methodology.

Figure 4. Energy price evolution (€/MWh) for an average consumer from July 2009 to October 2013. Source: CNMC, Spanish National Commission of Markets and Competitiveness
  •  Providing more realistic electricity price signals for consumers.
  • Promoting an active role of demand.
  • Enhancing consumer awareness by allowing to compare Time-Of-Use tariffs with fixed price tariffs.
  • Improving an efficient operation of the power system by flattening the load curve. The consumption in Spain during labor days combines deep valleys with sharp peaks, which require approximately double of power than valleys. This situation involves the start up of ‘peak’ power plants typically more costly and pollutant, in order to satisfy demand only during few hours thus decreasing the overall efficiency of the system. There is then a high incentive, in terms of cost and environmental impact, for using TOU price signals.
  • Increasing the effort of DSOs and retailers on feedback system development to inform consumers about their consumption habits.
  • Promoting a more transparent and accurate billing calculation procedure using smart meters.


Lessons Learned & Best Practices

Lessons learned:

  • methodology to determine end consumers electricity prices based on hourly market prices has been established.
  • Consumers have been prepared for the new scenario by providing them with information about the new model. The Spanish government has carried out two main actions in order to increase transparency and provide information to the consumers. First, a web tool that allows simulating the electricity bill calculation according to PVPC tariff. In the second place, a comparison tool, also online, with information regarding to the different options existing in the retailing market.
  • Inform consumers about the new tariff so they better understand price signals is crucial for increasing awareness of the benefits of DSM programs.
  • PVPC tariff requires to be supported by complementary actions in order to concern society about the benefits of Demand Side Management.
  • New technologies will be required to take advantage of all DSM benefits: feedback systems, communication networks between DSOs/TSOs and consumers, algorithms for determining the impact of DSM on the system, new billing systems, etc.
  • Transparency in electricity prices calculation is crucial for consumers to rely on the tariff methodology.

More lessons will be learned in the near future about the impact of TOU price signals on the engagement of consumers on DSM, once PVPC and smart metering are fully operative.

Best practices:

Spanish Government new PVPC tariff reflects an intention of using smart meters to obtain more realistic energy prices and to promote Demand Side Management for residential consumers.

This new tariff methodology has been based on:

  • Defining a methodology (PVPC) to calculate end consumer prices according to actual electricity generation costs. 
  • Informing the consumers about the new model and its benefits. 
  • Deploying smart meters in parallel to the tariff implementation. 
  • Guaranteeing the competitiveness in the market by increasing transparency. 
  • A sound agreement among the involved agents.


Key Regulations, Legislation & Guidelines

Historically residential consumers in Spain have paid constant energy prices independently of the hour and the day. The implementation of PVPC implies the use of a time differentiating tariff that reflects the hourly variation of generation costs. Using more realistic price signals promotes consumer engagement in Demand Side Management by increasing the awareness of its potential benefits. PVPC tariff is aligned with the on-going smart meters roll-out plan and shows the commitment to Smart grids development in Spain.



  • The methodology to calculate energy prices with the PVPC may result more difficult to understand by the user.
  • The price volatility associated to the PVPC can result in lowering the overall satisfaction with PVPC tariff during periods of high electricity prices.
  • The operation of a remote metering system may be a challenge for the DSOs.
  • Retailers will have to adapt their billing systems to the new tariff model.
  • Price signals have to be interpreted by consumers so they are led towards DSM.


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