Energy
Business 31/03/2022

Spain and Portugal to propose €30 cap on gas to lower electricity prices

If endorsed by Brussels, the measure would make electricity bills five times cheaper

3 min
The minister of Transició Ecològica, Teresa Ribera, yesterday 
 at La Moncloa.

MADRIDSpain and Portugal have already agreed on the cap for gas-fired power plants (pending the European Commission's approval) in order to lower the electricity bill: €30 per MWh, according to Portuguese newspaper Público. This number was later confirmed by the Spanish Minister for Ecological Transition Teresa Ribera, in declarations to the media from Galicia. These days the two governments have been negotiating the figure, which has to be approved by Brussels, and which is part of the proposals that the Commission will allow the two countries to roll out after their "Iberian uniqueness" was recognised. However, this measure would be "exceptional" and "temporary", the two governments have reiterated, in order to bring down high electricity prices.

Ribera confirmed that this is the figure that the two governments have proposed to the Commission. The final cap, however, will be negotiated with Brussels, the minister reiterated, and, therefore, may receive modifications. "We have just started working with the Commission, so I would ask for patience," Ribera insisted. This Monday, Unidas Podemos already suggested this figure. Minister of Social Rights and Podemos secretary general Ione Belarra, said that the cap ought to be "€30 per MWh". On the other hand, the ministries of Economy and Ecological Transition limited themselves to ask for caution and did not confirm the figure. "These are complicated issues", said the Socialist Minister of Economy, Nadia Calviño.

This week Ribera herself insisted that the limit that was to be proposed would be "much lower than the current [gas] price". "It is important to explain [in Europe] what figure we choose, and this requires technical work. The lower the price that Brussels considers it can endorse, the better for us," Ribera reiterated at the press conference following Tuesday's council of ministers.

Impact on the electricity bill

What impact could this have? The price of gas has normally been at around €20 per MWh, while in 2021 it began to rise to €50 per MWh and is now over €120/MWh, explained the Ministry of Ecological Transition and this is reflected in the Iberian gas market (Mibgas), which is shared by Spain and Portugal. Once the cap has been set, gas-fired power plants will not be able to sell the electricity they generate on the wholesale market above this price. It should be noted that this does not affect gas that families use at home for cooking or heating.

Since under the current system gas – the most expensive technology – drags up the price of other energies – such as renewables or nuclear, which are cheaper – introducing these changes should automatically lower the bill. Thus, the €30 at which the government is aiming would translate into an electricity price of around €100/MWh, while in recent weeks it has exceeded €500/MWh.

These plants will be compensated to cover the difference with the real price of gas, i.e. the one they pay. There are several options to do this, among them handing out compensation to companies via the state budget. But this has been ruled out and, finally, it will be the consumers who will do it. As only gas will be compensated and not cheaper technologies, such as renewables, there will still be an important reduction in the final bill.

However, the battle with Brussels to achieve this cap will not be easy. The Commission's main concern is that this will distort the European market. To solve this obstacle, Spain wants to sell electricity to France at a normal price. The buying and selling price of the day will be fixed without a limit, at a price determined by the last type of energy entering the auction, as it has been until now. Another price will then be set for Spain and Portugal, taking into account the cap on the price of gas.

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