Individuals. What do you pay on your electric bill?

Individuals. What do you pay on your electric bill?

We know that the electric bill must be paid, but do we know what we are really paying?

Within an electric bill there are several sections: fixed terms, variable terms, auxiliary services and associated taxes. In this post we want to explain what each one consists of and how they work.

Power term

This is the fixed term of an electric bill, meaning it is paid whether the electricity is used or not. It refers to the power (kW) that you have contracted and, therefore, the network has reserved for you at all times. It translates into the number of appliances that you can have connected simultaneously. When we ask the network for more power than we have contracted, meaning we connect more household appliances that it can deal with, «the fuse box switches.» It is actually the house meter that cuts the supply for having exceeded the contracted amount. To solve it, it is a matter of disconnecting some appliance and the meter itself will try to reconnect automatically, if not, you have to call the distributor to reactivate the supply.

Contracted power (kW) * Price (€ / kW · day) * Billing days = Power term (€)

Currently, only one specific power term can be contracted in the residential sector, although a new electricity rate has recently been approved and will begin operating in November this year. With this change more than one specific power term can be contracted and will be charged differently – we will discuss this in more detail in the future -.

Energy term

Consists of the variable term, depending on how much electricity is consumed the corresponding amount is paid for. This is where the free market comes into play and the strategies of the markets main players (providers). The current legislation differentiates three types of rates for small consumers:

  • Rate 2.X A: A constant billing period. It maintains the same price of electricity for any time of the day.
  • Rate 2.X DHA: Hourly discrimination, distinguishes two daily periods (peak and off-peak) with different prices and billing hours, which vary depending on the time change.
  • 2.X DHS Rate: Three billing periods. It includes the so-called «super off-peak», designed for charging electric vehicles.

Energía consumida (kWh) * Precio (€/kWh) = Término de energía (€)

Electricity tax (ET)

This is a tax that is applied on the sum of the terms of power and energy. Historically, this rate arose as an aid to coal mining. After the end of mining activities and the use of other less polluting energy sources, this tax was allocated to the Autonomous Communities.

5,11269632% * (Power T. + Energy T.) = ET (€)

Meter rental

It is paid by those consumers who do not privately own an electricity meter. As a general rule, it is usually the distributor who owns the meters and who is paid a monthly rental fee for the use and maintenance of these meters. The distributor accesses the data collected by the metert and sends it to the provider for invoicing.

The change from the old meters to remote management meters for small consumers was established by law. These new meters measure more precisely the flow of electricity in a bidirectional way, meaning, they can measure both the energy that is consumed and that of which is sent back to the grid (self-consumption with surpluses).

Rental price (€ / day) * Billing days = Meter rental (€)

Value Added Tax (VAT)

The VAT corresponding to electricity billing is 21% of everything described above. It should be noted that, by including all the terms, it is also applied on the Electric Tax (IE), paying a tax on another tax.

Another point to note is that, in Spain there are three types of VAT (4, 10 and 21%), depending on the sector or the need for the good or service. Electricity and water share the 21% VAT together with vehicles, alcohol, tobacco, clothing or household appliances, among others. Despite being a primary need service such as basic food, medicine or school books (VAT of 4%), they both fall into the luxury goods category.

21% * (Power T. + Energy T. + ET + Meter rental) = VAT (€)

The final cost of an electric bill will therefore be the sum of all the terms mentioned. It is possible that some providers include additional services, with their corresponding VAT. These «additional services» are not necessary for the service, since both the distributor and the provider must guarantee its quality at all times.

If you liked this post, you also maybe be interested in 100% renewable energy contracts. How real are they?, where we talk about the truth behind this contracts. If you are interested in receiving energy consulting services, do not hesitate to contact us.

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