Brussels gives final go-ahead to gas cap to lower electricity bills

President of the European Commission Ursula Von der Leyen admits electricity market is not working

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Ursula von der Leyen on Wednesday at the Strasbourg Parliament.

Madrid / BarcelonaAfter weeks of tug-of-war to close the technical details on the cap on gas prices, this Wednesday the European Commission gave the green light to the "Iberian exception" requested by Spain and Portugal. This mechanism should bring down electricity bills for the next twelve months, and was agreed by both countries with the EU executive. Specifically, the Spanish government estimates that the mechanism will have an impact of between 15 and 20% on families' bills, according to Spanish Prime Minister Pedro Sánchez.

The measure had been approved days ago by both the Spanish and Portuguese governments, but the final green light from the commission was still required before it could come into force. It is a cap on gas prices that will benefit all domestic and industrial customers, regardless of whether they are in the regulated market or not, as explained by the Spanish government. As detailed by the Minister of Ecological Transition, Teresa Ribera, the measure will allow a current average price per megawatt hour (MWh) of €210 in the wholesale market to be lowered to €130 on average.

The news comes on the day European Commission president Ursula von der Leyen admitted that the marginalist electricity market, where gas ends up setting the price for all electricity, does not work. Von der Leyen was speaking at Wednesday's European Parliament session and showed herself to be favourable to a reform that prevents gas from setting the price of electricity, claiming it is a system that does not adapt to the current reality of renewables being dominant.

Von der Leyen pointed out that gas, the most expensive source of electricity generation, defines the entire price of a system that "no longer works" because it was designed 20 years ago, when renewable sources were just beginning, but now they are "more efficient and cheaper". "This market system no longer works. We have to reform it, we have to adapt it to the new realities of dominant renewables", said the president of the Commission. She believes changing it would require "an enormous reform", while indicating that it will take time to carry out because it must be "very well thought out".

Her words represent a radical change in the position maintained until now by the EU executive, which had defended the marginalist market. In fact, the new position is closer to the one defended by Spain, which led to the establishment of a cap on gas prices for electricity generation in Spain and Portugal, in the so-called "Iberian exception" that Brussels admitted only because the Iberian peninsula can be considered an energy island due to the lack of interconnections. Until just a few months ago, the European Commissioner for Energy, Kadri Simson, defended that the current model is "the best option" for European users and companies.

Sánchez defends the gas cap

The crisis over the increase in the price of electricity emerged this Wednesday in the Spanish Parliament, where PM Pedro Sanchez was attacked by the PP and Vox for the price increase. Precisely, Sánchez took the opportunity to ask for support, out of "duty to the state", for both for the extension of the anti-crisis measures as well as for the decree on the gas price cap, which is to be voted on this Thursday.