The expansion of renewable energies is transforming Spain’s electricity market, enhancing the competitiveness of retailers and delivering clear benefits to end consumers.

Esther Martínez Arroyo, , Energy and Utilities Sector Director at PwC explains that the growing presence of renewables allows for more competitive and attractive tariffs for users.

“A higher penetration of renewable energies reduces the electricity price for end consumers,” she stated in an interview with Energía Estratégica España, highlighting that this transformation benefits the entire energy value chain.

In a highly competitive market, these factors are redefining the business model for electricity retailers, who aim to consolidate their position by offering more affordable and stable tariffs.

A Competitive and Open Market

PwC’s report highlights that Spain’s retail electricity market has become one of the most open and competitive in Europe.

Since full liberalization in 2003, the Herfindahl-Hirschman Index (HHI), a key metric for measuring competition, has fallen to levels below 2,500 points, placing Spain among the least concentrated markets.

As of now, the country has 534 active retailers, a 40% increase compared to four years ago, marking the highest figure in the European Union.

The high rate of retailer switching, reaching 21% in 2023, also reflects Spanish consumers’ strong participation in choosing their electricity suppliers.

Additionally, greater access to information has encouraged active consumer engagement, with 23.2% of households changing their electricity retailer between July 2023 and June 2024.

Transparency and ease in comparing prices have prompted retailers to become more competitive, offering tariffs and services tailored to customers’ specific needs.

PPAs and Market Stability

For electricity retailers, Power Purchase Agreements (PPAs) are a strategic tool for managing risks in a market characterized by volatility.

Martínez Arroyo emphasizes that these agreements enable retailers to secure long-term fixed prices, which is essential for providing stability.

In Spain, PPAs have been instrumental in creating a predictable cost environment, especially when established with independent renewable energy generators offering terms of up to 10 or 15 years.

According to PwC’s report, Spain leads in PPA contracting, reaching 3,877 MW in 2023, positioning the country as a European benchmark.

“For end consumers, tariff stability is essential, and PPAs offer precisely that predictability, protecting them from the volatility of daily markets,” says Martínez Arroyo, though she notes that there is still significant lack of awareness about these agreements.

She highlights the opportunity for European policies to promote such long-term contracts by modifying the unified electricity market, encouraging their development with clear criteria for end customers.

Both the CNMC and PwC stress that liquidity in the forward market is crucial for retailers to manage their risks and provide stable prices to consumers.

“A well-developed PPA market, combined with greater forward market coverage, creates a more stable and predictable environment for all stakeholders,” states the PwC expert.

However, she underscores the importance of eliminating regulatory barriers that restrict flexibility in long-term contracting to strengthen these mechanisms.

The document, presented last Friday, suggests that Spain could benefit from partial deregulation of long-term tariffs and the removal of certain intervention mechanisms that have impacted wholesale market liquidity.

This adjustment would give retailers greater flexibility to hedge their risks, while end consumers could opt for tariffs based on more competitive and efficient markets.

Reforming Regulated Tariffs and Supporting Vulnerable Consumers

In line with the report’s recommendations, Martínez Arroyo believes regulated tariffs should be reserved for vulnerable consumers, allowing other users to access the wide variety of competitive offers in the free market.

PwC’s report suggests gradually phasing out regulated tariffs, maintaining them solely as a social safety net.

Such a measure could improve market efficiency and align prices with supply and demand dynamics in the energy sector.

The executive notes that cheaper prices resulting from a renewable energy-rich mix will facilitate this process, narrowing the pool of beneficiaries eligible for these tariffs.

Key Measures Proposed in PwC’s Report

PwC’s report on Spain’s retail electricity market proposes specific measures to strengthen competitiveness and improve consumer experience in a rapidly evolving sector.

• Reserving regulated tariffs for vulnerable consumers: This would allow other users to participate in the free market, where more competitive tariffs are available thanks to the growing share of renewables.
• Removing regulatory barriers: Addressing limitations on long-term contracting and enhancing forward market liquidity would help retailers better manage risks, particularly through instruments like PPAs that ensure price stability and cost predictability for consumers.
• Strengthening coverage and solvency mechanisms: These steps would enable retailers to operate more securely and resiliently against price volatility, ensuring stable and reliable service.