Spanish utility Gas Natural has reportedly ceased selling electricity to the liberalized market owing to the disparity between the wholesale price of power and the tariffs it is allowed to charge to end users under Spain's regulated market system.

The La Vanguardia newspaper cites a letter sent to clients by the company informing them that their contracts, once expired, would not be renewed. The company says that the 119% rise in the cost of wholesale electricity on the Spanish market since 2004 has not been reflected in the price it is allowed to set to customers, which it claims has increased by just 6.3% in the same timeframe.

Gas Natural is required to source its retail electricity on the wholesale market, but it is also able to use its generating facilities to sell power onto that market, something it will continue as it benefits from the high returns available.

The Spanish wholesale market has come in for considerable criticism in recent times. In a bid to suppress retail prices, the government has in recent times compensated suppliers for the losses incurred from selling power at below the market rate. However surging wholesale prices triggered by tightness of supply have meant that the government has suspended these ‘parachute’ payments, leaving the major suppliers considerably out of pocket.

Furthermore, the regulated tariff structure of the market remains a major impediment to consumer switching, and the government remains hesitant to implement EU reforms aimed at opening the market up to full competition among suppliers. Indeed, the European Commission is threatening Madrid with court action over its well-publicized attempts to stymie German group E.ON’s attempts to buy local power firm Endesa.