XXI Congreso de la Asociación Española para la Economía Energética, Pamplona (Spain). 27-29 May 2026
Summary:
System service costs in Spain have increased by more than 400% since 2020, reaching 16.5% of wholesale market value in 2024. These costs are recovered through a uniform volumetric charge on demand, despite being largely non-marginal or location-specific. This paper assesses the efficiency implications of this allocation mechanism and quantifies associated welfare losses using empirical aggregate supply and demand curves from the Spanish day-ahead market. Results show growing distortions, although small in size relative to wholesale market volumes. However, the distortion is expected to grow, particularly as demand elasticity increases. The paper concludes that volumetric recovery is no longer fit for purpose and proposes alternative mechanisms based on network tariffs and imbalance-linked allocation.
Spanish layman's summary:
En España, los costes de los servicios del sistema han subido más del 400% desde 2020 y suponen ya el 16,5% del mercado mayorista en 2024. Cobrarlos uniformemente por kWh distorsiona el mercado y empeorará con la flexibilidad. Tarifas de red y cargos por desvíos serían más justos y eficientes.
English layman's summary:
In Spain, system service costs have soared over 400% since 2020, reaching 16.5% of the wholesale market in 2024. Charging them uniformly per kWh consumed distorts the market and will worsen as demand becomes more flexible. Network tariffs and imbalance-based fees would be fairer and more efficient.
Keywords: Electricity markets; System services; Cost allocation; Welfare loss; Market design
Publication date: 27-May-2026.
Citation:
P. Avello Gorostidi, J.P. Chaves, "Electricity System Service Costs on the Rise: Is Spain’s Cost Allocation Mechanism Still Fit for Purpose?", presented at XXI Congreso de la Asociación Española para la Economía Energética, Pamplona, Spain, 27-29 May 2026
IIT-26-128C
