Power Prices Set to Rise in New Year for 17m Households
December 28th, 2010
The Spanish government said yesterday that household electricity prices will increase by 9.8%, effective Jan 1st, in a move that could stoke already-strong inflationary pressures as it reverberates through households and the larger economy.
Spain’s industry ministry said the hike will affect around 17 million Spanish households that rely on the so-called “last resort price,” the only one still set by the government after the sector was liberalized in recent years. This price is available only to households using less than 10 kilowatt hours that decline to negotiate directly with power companies.
The ministry said the increase is justified by higher prices for fossil fuels, since natural gas is the main source of electricity for homes in Spain.
It added the increase in electricity prices is in line with hikes seen in recent months in other European countries.
Observers say the government is also looking to contain the country’s tariff deficit, the difference between the prices charged by utilities and those paid by consumers.
The tariff deficit, booked as revenue by the utilities, has effectively served as a government subsidy on power prices by enabling utilities to provide power to consumers at a price lower than the cost of production.
The deficit has been rising over a decade as successive governments failed to increase power prices quickly enough to keep pace with rising oil and gas prices, and now stands at over €15 billion. It has also been pushed wider by a surge in expensive renewable energy production, in particular wind and solar power, that has gone from almost zero to over 16% of Spain’s power generation in 10 years.
Even after recent cuts in government renewable energy subsidies, part of a wide austerity drive, wind power generation remains twice as costly as average electricity generation, and solar power is close to nine times more expensive. The subsidy cuts are part of a Spanish drive to lower its budget deficit to 9.3% of gross domestic product this year. online.wsj.com
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