Iberian exception: Spain and Portugal capping gas cost for power

In April, Spain and Portugal reached a political agreement with the European Commission to place a price cap on natural gas used in power plants, allowing a decoupling between electricity and gas prices. The mechanism, proposed to tackle soaring electricity bills and inflation, will only be temporary, effective for the nex t 12 months. The price cap will be 40 €/MWh during the first weeks, while it will average out at 50 €/MWh over the 12 months of implementation. It is anticipated that the implementation of the mechanism will half the electricity bills for approximately 40% of Spanish and Portuguese consumers on the regulated market.

The approval of “Iberian exception” was granted, given that Spain and Portugal have high levels of renewable energy generation and very limited interconnection to the rest of Europe (only 2.8%) 2.8%), practically rendering the peninsula an “energy island”. According to the agreement, the electricity prices for consumers in the peninsula and continental exchanges (via France) will be the same.

More countries (e.g. Belgium, Greece) have shown interest in applying similar mechanisms to mitigate the impact of soaring gas prices on retail electricity consumers.

Author:

Maria Kotofolou , Energy Market Analyst

Sources:

[1]Euronews : “Brussels agrees to 'Iberian exception' allowing Spain and Portugal to cap electricity prices”, 26 .04 .2022

[2]ELPAIS : “España y Portugal pactan con Bruselas su plan para bajar la factura de la luz ”, 26.04.2022

[3]ELMUNDO : “España y Portugal anuncian un acuerdo con Bruselas para abaratar el precio de la luz”, 26 .04 .2022

[4]Euronews : “Belgium takes up baton to seek gas price cap”, 21 .03 .2022

[5]Reuters: “ Greece gets EU's initial nod to cap power prices minister ”, 23.05.2022