Analysts doubt Brussels will accept the 30 €/MWh gas cap

Minister Teresa Ribera is optimistic and expects the EC to support the proposal

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Minister Ribera during the closing ceremony of the REACT conference in Barcelona.

Financial analysts are not entirely sure about Spain and Portugal's proposal to cap gas used to generate electricity at €30/MWh on gas used to generate electricity in order to lower the price of electricity. "It is not 100% certain for us that the EU would approve such a low limit," says Banco Santander. As for JP Morgan, its analysts explain that "it is unlikely that the proposal will be accepted by the EC". For its part, JB Capital Markets says that it would not be surprising "to finally see a higher limit with a shorter duration".

But, despite the doubts, these different analysts agree in pointing out that, if the measure finally goes ahead, the price of electricity in the wholesale market would be reduced significantly, to a third of its current price, which is around 225 €/MWh. Thus, Santander indicates that the price could range between 70 and 90 €/MWh. For JP Morgan, it could be around 90 euros, the same price as JB Capital Markets, while Mediobanca indicates that it could be between 85 and 90 €/MWh.

But, beyond the price and the position adopted by the European Commission, analysts express other doubts. For example, electricity would be much cheaper in the Iberian Peninsula than in the rest of the European Union, which would become a competitive advantage for Spanish and Portuguese industries. This could be "an alleged unfair competitive advantage", JP Morgan points out, while Santander indicates that it could be considered "state aid", prohibited by the EU authorities.

Moreover, according to Santander, the gas price cap for gas-fired cycle plants would generate a significant deficit, since the gas price currently stands at around 118 €/MWh. Therefore, generating companies would have to be compensated, which would generate a tariff deficit of at least €6bn.

Ribera's optimism

On the other hand, the fourth vice-president of the Spanish government and minister for Ecological Transition, Teresa Ribera, who was in Barcelona this Friday, has expressed her confidence that the proposal for a temporary cap on gas at 30 €/MWh is "solvent" and "compatible with the requirements" of the European Council. "I am positive and optimistic; there may be changes [...] but they will not deviate much from what is being discussed," said Ribera. The minister believes the immediate application of the measure, within "3 or 4 weeks", is "realistic".