Portugal and Spain had proposed setting the price for gas in electricity production at 30 euros per MWh, but the European Commission has determined that the ceiling is 40 euros.
Brussels has given the green light to the Iberian proposal to limit the price of natural gas used to produce electricity. However, the initial price set by the European Commission is 40 euros per MWh, whereas the two countries had proposed 30 euros per MWh.
The announcement was made on Tuesday by the Minister for the Environment, Duarte Cordeiro, and the Spanish Minister for the Ecological Transition, Teresa Ribera, at a press conference in Brussels. The measure should take effect in May.
‘Today Portugal and Spain reached a political agreement with the European Commission after very intense weeks of work, which required very difficult technical work, but which has allowed us to make very significant progress today and reach a very satisfactory result,’ said Duarte Cordeiro.
The agreement, he explained, consists of the creation of a temporary mechanism that allows the price of electricity in the Iberian Peninsula to be decoupled from the price of gas. The mechanism ‘makes it possible to defend consumers who were exposed to the market,’ added the minister.
The mechanism will last 12 months, during which an average gas price of 50 MWh will be set, but it will start at 40 euros. Over the course of the 12 months, it will rise to 50 euros. The price is currently around 90 euros per MWh.
According to published but unofficial information, the initial Iberian proposal was for a lower ceiling of 30 euros per MWhour, which would result in a wholesale market price of 110 to 120 euros per MWhour. But European negotiations resulted in a higher limit, which will still guarantee savings on electricity purchases on the spot market - market prices with CO2 will be around 140 euros per MW hour compared to average market prices of 200 euros per MW hour.
It remains to be seen specifically how the revenues will be shared between sellers and buyers in order to avoid creating a tariff deficit, whether there will be compensation for gas-fired power stations that will be paid at the expense of the gains from renewables, and what savings the new model will make for consumers on both sides of the border. At the beginning of April, the presidents of several companies in the sector sent a letter to Brussels in which they warned that the proposal is more favourable for Spanish consumers than for Portuguese ones, and that they may even end up paying more.
‘All consumers will benefit and none will be harmed and the consumers who are exposed and will benefit from this mechanism will also be the ones who will bear the cost of the mechanism,’ said Duarte Cordeiro, explaining that, ’once the mechanism comes into force, all consumers who are exposed will benefit from a reduction in the price of their bill.’
According to the minister, ‘the average gain during this period, if the price of gas remains high, will be very significant’. In recent days it hasn't been gas that has marked the price on the Iberian market, said Duarte Cordeiro.
When questioned by journalists, the Environment Minister also said that Portugal and Spain have alerted the European Commission to the need to ‘rethink’ the price formation, because this mechanism is temporary. ‘It's clear that there is a gap here, or a flaw, which either needs to be corrected in the formation of the price or corrected in the interconnections. There are several aspects that need to be interconnected for the future of price formation in the Iberian market,’ he concluded.
The Spanish minister corroborated that the issue of the ‘very low interconnections’ between the Iberian Peninsula and the rest of Europe ‘is the main restriction on consumers being able to enjoy the advantages of the internal electricity market’, which is why, along with the high level of renewables, the two countries benefit from this temporary exception in the operation of the market.
Teresa Ribera added that the two countries hope that ‘in the next few days’, once the whole procedure has been completed, it will be possible to have the Commission's support so that the mechanism can be implemented ‘immediately’. The formal communication with the European authorities should be finalised by the end of the week. In the case of Spain, the measure could be taken to the Council of Ministers next week and will be materialised in consumer bills in May, said Teresa Ribera. Duarte Cordeiro added that the national timings will be identical, depending on Brussels' ability to respond to the information sent by the two countries.
The Spanish minister also emphasised that the mechanism is designed to ‘strengthen the protection of consumers who have a higher level of exposure to the wholesale electricity market’, both domestic and industrial.
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