Sánchez advances the initial price, which he stresses will be “half” of what is currently being paid for this energy.
Starting today, the limit on the price of gas used to generate electricity will start at 40 euros MWh and, over the next 12 months, will reach an average of no more than 48.8 euros. The President of the Government, Pedro Sánchez, has advanced on Thursday some details of the decree that will be approved tomorrow by an extraordinary Council of Ministers and with which the price of electricity is expected to fall substantially.
This measure is based on the authorisation given by the European Commission to Spain and Portugal to limit the price of natural gas used to produce electricity to an average of 50 euros per MWh for 12 months. The government has already indicated that this would not be a fixed price every month and that it would start with a lower price of 40 euros.
On 25 March, EU leaders recognised that both Spain and Portugal needed “special treatment” to manage high electricity prices due to their low level of electricity interconnection with the rest of the region. The European Council agreement opened the door to the so-called “Iberian derogation”, which overcame the initial reluctance of partners such as Germany and the Netherlands and aimed to allow the two countries on the Iberian peninsula to adopt specific measures due to their “energy island” status
Since then, Madrid and Lisbon have been working on a joint proposal, which initially consisted of a price ceiling of 30 €/MWh for gas for electricity generation, with the aim of alleviating the upward ‘rally’ in the wholesale electricity market, which has a direct impact on the regulated tariff or PVPC, which almost 11 million consumers in Spain are covered by.
However, gas fluctuations, caused by the rapid increase in demand for this raw material following the normalisation of economic activity in the post-pandemic period and, now, by the Russian invasion of Ukraine, have also affected industrial consumers with tariffs indexed to the pool, 80%.
After a month of waiting, Spain and Portugal announced at the end of April that they had reached a “political agreement” with the European Commission that included the application of an initial cap of 40 euros/MWh that would stabilise at almost 50 euros/MWh for twelve months.
Having received the “letters of agreement” from Brussels last Friday, the governments of both countries have been working “against the clock” to finalise the last issues in order to give the green light to the mechanism this week, as the Minister for Ecological Transition, Teresa Ribera, has insisted in her latest public speeches.
On the eve of the extraordinary Council of Ministers, the President of the Executive has confirmed that the maximum price of gas to be approved tomorrow is 40 euros/MWh “compared to yesterday’s 72 euros or the almost 80 euros on average that it has set in the last quarter. It is half”.
The mechanism, which will reduce the bill by around 30% for an average consumer with a tariff indexed to the pool, “will be in force for the next twelve months, guaranteeing an average price of 48.8 euros/MWh, which will provide important protection” for users.
The measure will also be approved tomorrow by the Portuguese government, “in a further demonstration of the close collaboration and coordination” of the two cabinets of the Iberian market, said Sánchez, who believes that “Iberianism suits Europe and the construction of Europe”.
Once the two governments have given their approval, the mechanism will be sent “immediately” to the European Commission, which “must adopt a decision by the college of commissioners to make its application effective”, according to what the minister Ribera has explained in recent days. According to Ribera, who is also the third vice-president of the government, the idea is that this system will be “fully operational in a few days, a few weeks”.