Spain deregulates its electricity sector


The general principles of a new law establishing the basis of the liberalisation process for the electricity sector in Spain, met the objectives of European Directive 96/92 concerning common rules for the internal electricity markets. The separation between regulated and deregulated activities, access by third parties to the grid, and the mechanisms to integrate these activities, formed the basic pillars for the development of markets and the introduction of competition.

The new law thus paved the way for liberalisation of production, transferring the investment decisions about new electric power plants to the market agents. The supply activity has also been liberalised, allowing consumers to make a gradual transition from regulated tariffs to those that are market related.

Transmission and distribution continue to be seen as natural monopolies because they make up the electricity grid, and thus they have remained regulated. Their future development activities will, however, be based on the new regulations. The link between regulated and deregulated activities is achieved through the principle of third party access to the grid by means of access rates under established and regulated conditions.

In this new operational environment for the energy sector, an essential element of the regulation is the definition of the system of electric measurement. In the old regulatory framework a company was responsible for the entire business chain – from energy production, through transmission and distribution and finally to the supply of power to customers. The new laws impose the separation of these activities, each one now being carried out by a different company. In the past this was not a concern – utilities were not really interested, for example, in the measurement of the energy flow that a generator supplied to its own grid. Now it is necessary to measure this energy flow more carefully at the points that separate each of the activities (i.e. production, transmission, distribution etc), because more than one party is interested in the measurement.

Another important change that took place with liberalisation that requires a new system of electric measurement to be defined, is the creation of the wholesale electricity market.

This is a market where buyers and sellers carry out their transactions, and energy has a different price in each of the 24 hours in a day. This gives rise to the need for new technology. Historically the need to measure energy flow and energy supplied arose only when rates changed, something which did not happen regularly. In the new hourly market it is necessary to have equipment capable of measuring the energy produced or consumed every hour.

Given the complexity of the operation of the market, and the physical nature of electricity, there is a requirement to maintain a constant balance between the production and consumption of electricity. The system of electrical measurement therefore needs to be carefully designed, in order to ensure stability in the programmes of market agents.

This is necessary so that any agent who participates in the different market mechanisms, i.e. taking and relinquishing positions, both in the daily and the longer term intra-daily markets, and in the regulation ancillary services – these being the tools used by the system operator to maintain the balance between production and consumption – will have an energy programme that is reliable and that can be used in the settlement process.


The purchases and sales of electricity are settled by comparing each agent’s final position with the electricity that is produced or consumed – in other words, the measured electricity. This allows the total costs in the system and the deviations between the scheduled and actual electricity supplied to be distributed among the agents in proportion to their individual positions.

It is also necessary to consider the direct affect on consumers of the regulatory decisions with respect to the electricity measurement requirements. The move to a market in which consumers may choose their electricity supplier has been a gradual, phased process in Spain, as it has in most other countries. At the start of the process in 1998 only qualified consumers – large consumers who are connected at medium and high voltage and consume large volumes of energy – were able to choose their supplier. At these levels of consumption it is possible to introduce elasticity into the price of electricity at an hourly level, and the installation of metering equipment that can record this with sufficient precision is economically justified.

However, as liberalisation advances and more and more smaller consumers ask for their electricity to be supplied under market conditions instead of at the regulated rates, the costs associated with the necessary metering equipment to achieve this become more important. It is thus necessary not to make any errors when seeking a balance between the benefits associated with measurement equipment adapted towork in an hourly market and the costs associated with this more sophisticated equipment.


A general principle that should be maintained is that the design of the electricity measurement and control system does not turn out to be a barrier preventing the consumer from participating in the market. There should therefore not be any differences in the definition of the measuring equipment regulation for the different trading models. If it is decided that a consumer of a particular type and consumption level should have hourly equipment, for example, this equipment should be supplied independently, whether the supplier goes to the organised market (‘pool’) to buy the electricity or enters into a bilateral contract with a production agent. If different conditions exist for different trading models, this will influence the decisions of agents and consumers.


The organisation and architecture of the measurement system is another basic element that must be considered at the regulatory level. It is necessary to define the different processes, the players that participate and their role in the complete chain, since there is measurement of electricity until it reaches the agent who is responsible for carrying out the settlements. In the case of the Spanish electricity system, this model has been defined according to the functions and responsibilities of the market operator and the system operator, as the agents in charge of the electricity settlement, as well as of the distribution companies, which have been assigned the data reading function. The system operator is also the manager of the measurement system and has to submit the measurements to the settlement process.

It should be noted also that freedom has been granted to the consumer, who may opt either to buy the metering equipment himself, or to rent it from the distribution company. The consumer has also been granted the right to install more sophisticated metering equipment than that required by regulation, as long as he accepts the higher cost of that equipment.

The system operates on the basis of a model of centralised administration of all the measurements that are used in the settlement process, which are sent to the system operator. Individual measures are supplied for each production and consumption point via the distribution companies, which also undertake some degree of aggregation of themeasures for small consumers.


In summary, the system of electricity measurement has a different role in a liberalised market than in the traditional regulatory framework. The liberalisation processes and the creation of markets implies the separation of the liberalised activities (production and commercialisation) and regulated activities (distribution and transmission). A new model that introduces new requirements as well as new responsibilities for each of the agents is also needed. The regulations must seek an appropriate balance between obtaining the benefits of having more efficient measuring equipment and the costs resulting from this decision – costs that will ultimately flow through to consumers.