what is it, why do you pay compensation and how is it calculated

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We will try to explain in the simplest way possible. what exactly is the gas cap and why are you having to pay compensation on your electric bill. We’ll also tell you exactly how this compensation is calculated, so you know exactly where all this comes from.

It is a very complex topic that is not always easy to understand, but we are going to try to give you all the keys and the context so that you understand where all this comes from. We will start by explaining what the gas cap is, and then the compensation. we will also tell you how it affects you depending on the type of contract that you have for the light of your house.

what is gas cap

To understand what this gas cap is and why it’s important, you need to know two different things. First of all, you should know that the electricity we consume is produced in different ways, and one of them is gas, through thermal power plants. Therefore, simplifying everything a lot, the higher the price of gas in the market, the more expensive the electricity, since part of it is produced by gas.

Second, there is the geopolitical context of 2022. Russia has started a war to invade Ukraine, and the European Union has positioned itself in favor of the attacked people. One of Russia’s weapons is using gas, cutting off part of its supply to Europe and threatening to do so entirely, while Europe tries to stop using Russian gas. In the end, this affects the market price of gas to which the electric companies go to produce electricity.

This is due to how the electricity wholesale market price system is organized, in which the price of the last kWh needed to match supply and demand is what decides the price of energy. This means that when gas is used, whose price is rising a lot, the total price of the electricity bill is affected.

And the measure that has been chosen in Spain to try to contain this rise in the price of electricity has been to establish the gas cap. With this, it is established that the gas used to generate electricity has a ceiling price of 40 euros/MWhalthough from the sixth month the price will go up by 5 euros per month until it reaches a ceiling of €70 MWh.

This means, to give an example with simple figures, that if one day the gas used to generate electricity has a price of 60 euros/MWh, the maximum price that electricity companies can pay is 40 euros/MWh. No matter how much it has risen, the price of gas is always fixed to produce electricity, and that makes the total price of electricity that we pay for be contained.

What is the compensation that we pay

Despite the fact that the price of gas has been set at a higher price, the thermal power plants that produce electricity with it will continue to buy it on the international markets at market prices. Therefore, the producers will be paid for the difference in prices between what it costs them to produce electricity with gas and the ceiling price that has been imposed.

This compensation is variable, since the higher the price of gas or the more gas is needed to produce electricity each day, the greater the difference between the cost and the price at which they sell it. Therefore, the more expensive the gas is and the more gas is needed, the greater the compensation that the producing plants receive.

This compensation will be paid by consumers of electricity, and for this reason, the compensation has begun to appear in one way or another in some electricity bills, making these also more expensive.

In theory, with this method it is promised that electricity is cheaper for us by paying the compensation than without applying the gas cap, although in practice we are finding huge compensations in the bill that are making it very high. This compensation would depend on how much each power company has to be compensated for, and this depends on how much it costs to produce electricity using gas at each hour of the day.

The cap on gas is saving Spaniards 30% on their electricity bills.  We don't know until when

How compensation is calculated

The price of electricity has a different price every hour, and therefore, the compensation also varies at each hour of the day. The way to calculate it is to know from the price of each hour what percentage of electricity has been produced by gas, and the price that the electricity companies have paid for this gas.

Then, the compensations for each day are added up and at the end of the month they are divided among the users of the electricity network. Therefore, the important thing is to know that the price is variable hour by hour. Both the prices of each day and hour and the proportion of electricity generated by the different types of energy sources are in the website of the Electric Network.

How it affects you in PVPC or free market

As we have said, the compensation for the gas cap is distributed among all the users of the electricity network, except contracts with a fixed price prior to April 26, 2022since by having a fixed price they are not benefited by the changes applied by the cap measure.

Therefore, you will pay the extra for compensation of the gas cap if you have contracted electricity with a regulated rate or PVPC (Voluntary Price for Small Consumers). You will also pay it if you have a fixed price contract that was renewed after April 26, 2022.

If you have contracted electricity at a regulated rate, the price of the compensation will appear integrated in the concept of Cost of Energy. This means that, in general, it is most likely that you can’t tell how much compensation you paid as it is integrated with the total cost.

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In the case of free market fixed price contractsIt all depends on each marketer. Ideally, they would indicate separately what the compensation price is, but in general they are choosing to indicate in small print and in inconspicuous areas that the cost of capping the price of gas is added to the prices.

The biggest disadvantage for fixed price contracts is that the prices will no longer be fixed for the duration of this rule, since there will be a variable component in the invoice. this variable It will depend on the time you consume and how much gas was used at those hours to generate electricity.

We will try to explain in the simplest way possible. what exactly is the gas cap and why are you…

We will try to explain in the simplest way possible. what exactly is the gas cap and why are you…

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