Europe | Electricity bills fall, but less than wholesale prices

Retail electricity prices are adjusted in response to fluctuations in wholesale markets, shaped by the regulatory policies of each country and, where relevant, consumer willingness to pay a premium to mitigate price volatility.

Key points

• Key points:
• Wholesale electricity prices in Europe have continued to decrease, with Spain experiencing the lowest rates, maintaining a downtrend since February. However, these reductions in wholesale prices are not always mirrored in retail prices due to various influencing factors.
• Retail pricing mechanisms include dynamic pricing, which adjusts frequently based on supply and demand, reflecting rapid changes in wholesale prices. In contrast, fixed price systems offer price stability throughout the contract, usually revised annually. While dynamic pricing often results in lower averages, it comes with higher volatility.
• In Spain, retail prices have decreased significantly, more so than in other EU countries, yet they remain substantially higher than wholesale prices. Reasons include, among others: fixed tariffs not benefiting from wholesale reductions and increasing taxes.
• In 2024, regulatory changes have impacted retail electricity prices. Spain repealed measures from 2022 aimed at reducing costs, resulting in VAT on electricity increasing from 5% to 10% in January, and then to 21% in March, following a drop in wholesale prices below 45 EUR/MWh. The Special Electricity Tax also rose in January, highlighting policy shifts in response to market conditions.
• Fixed prices, less impacted by the 2022 price rises, are now decreasing less significantly. The preference between price stability and volatility remains a factor for consumers.

Authors

Geographies

Topics

Tags