'We must empower consumers so that they can benefit from participating in the markets'

PRESS RELEASE from Acen 
August 19, 2022

(Please note that this is a machine translation of the original release, issued in Spanish)

Europe's energy crisis has its citizens practically turning off the lights and setting their air conditioners to 27°C. This situation “could be reversed in the medium and long term by accelerating the energy transition that requires huge investments from the private sector to electrify the economy and decarbonize the electricity sector. However, to encourage this investment, important changes are needed in the design of electricity markets and in the framework of the energy sector, in particular, to obtain the support and participation of consumer-citizens”, pointed out Dr. David Robinson, Senior Research Fellow at the Oxford Institute for Energy Studies (OIES), in the context of the ACEN Dialogue “Gas crisis in Europe: impact on energy sales”.

How is the energy transition accelerated? According to Robinson, a new market design must be agreed upon that guarantees the security of the decarbonized electricity supply, avoids government interventions in the electricity sector that delay the transition and increases its costs, and promotes active consumer support and participation in electricity markets. In this last point, it is necessary to “empower consumers so that they can benefit from participating in the markets”.

When consumers have the physical alternative of consuming their own power and even going offline if the system is too expensive, Robinson continued, they don't have the same power as before. “Precisely the role of the new marketer is to help the consumer to be an actor, to be competitive because if they try to raise prices there will be competitors that offer something cheaper. Consumers are also going to be looking for more medium-term contracts to fix their costs and not depend so much on the volatility of the wholesale markets. In my opinion, we are in a situation where assuming that there will be investments without changing the design of the market, I do not think it is correct”.

According to the OIES researcher, the distribution monopoly and marketing do not have the same incentives, "while the former prefers that consumers are not active and only pay the bill, marketers and aggregators bet that the final consumer is active through its contracts not only in the purchase of energy, but also in the sale of energy and complementary services in the congestion, capacity, energy markets, etc. For that to happen, marketers must not only have access to these small consumers, but also know how to add them. That requires that there are markets where both consumers and marketers or aggregators can sell the services”.

In the future, he added, he estimates that both in the European Union and in Great Britain “and why not in Chile, the development of commercialization, aggregation or energy communities at the local level are going to be fundamental. It would be something that is missing now and that is going to have a significant impact on consumers, not only some benefits for them or for the system, but also for the energy transition.”

Bankruptcy of marketers in Spain

On the other hand, Raúl Fernández, General Director of the Natural Gas Business at Factor Energía, said the bankruptcy of some Spanish marketers was due to the lethal combination of three elements that include payment delays, cash flow stress and lack of coverage. “We are seeing a trickle every month of marketers that cannot resist those prices, but especially the hardest thing for them is the issue of working capital . If you have previously bought energy at 20 euros per mega and you buy energy weekly, what happens, if the price is set at 100, the energy that you have to buy is multiplied by 5, that is, the energy that you have to Financing the client that you bill after 1 month and a half is multiplied by 5. So if you don't have a very strong financial lung, you'll go bankrupt simply because you can't finance your purchases in the market. This has caused the bankruptcy of profitable marketers and those that had not done their homework that did not have the coverage”.

According to Fernández, the competition is super good and what renewable energies have brought is an empowerment of the consumer, especially in self-consumption, “that is the great revolution. The energy transition must avoid an oligopolistic component in the generation market, especially in electricity, that precisely goes against this competition and that one factor, self-consumption, can reduce it. In the end, if everything goes well, the energy transition ends with nuclear fusion, that is, renewables and fossil fuels end up in an element that is nuclear fusion and these serious problems that we are having now would be avoided”.