The Spanish and Portuguese measure worth €8.4 billion has been approved under EU state aid rules to reduce wholesale electricity prices on the Iberian market.
The prime ministers of Portugal and Spain have highlighted the long path of negotiation taken by the two countries to achieve Thursday’s approval by the European Union executive of a ceiling for the price of gas used in the generation of electricity.
This joint position of Portugal’s António Costa and Spain’s Pedro Sánchez appears in a joint message that both posted on the social network Twitter, after the European Commission approved the temporary Iberian mechanism to limit the price of gas in electricity production until 2023.
“The European Commission has approved the Iberian mechanism that sets a ceiling for the price of gas used in electricity production in Spain and Portugal. A long road travelled by both countries to protect businesses and families from price escalation,” wrote the heads of government of Portugal and Spain.
The EU executive said that a Spanish and Portuguese measure worth €8.4 billion has been approved under EU state aid rules to reduce wholesale electricity prices on the Iberian market by cutting the production costs of fossil fuel power plants.
At stake is the temporary mechanism in the Iberian Peninsula to set limits on the average price of gas in electricity production, at around €50 per megawatt-hour (MWh), which was requested by Portugal and Spain due to the current energy price crisis and the war in Ukraine, which has put further pressure on the energy market.
According to the commission, the mechanism will be in force until 31 May 2023, representing Portuguese state support of €2.1 billion and Spanish support of €6.3 billion in payments through direct subsidies to electricity producers to thus finance part of their fossil fuel costs, since in the current European market configuration it is the price of gas that dictates that of light.
The daily payment will be calculated based on the difference between the market price of natural gas and a ceiling to this amount set at an average of €48.8/MWh during the 12-month duration of the measure.
In mid-May, the two governments approved in their respective cabinets this temporary emergency mechanism for the Iberian Peninsula, at a time of energy crisis accentuated by the effects of the Ukraine war on supply chains, and weeks later requested it from Brussels.
Earlier, at the end of April, the governments had reached a political agreement with the commission for the establishment of a temporary mechanism that would allow setting the average price of gas at €50/MWh.
In Thursday’s statement, the commission recognises that “the Spanish and Portuguese economies are undergoing a serious disturbance” and so the current situation justifies “temporary emergency measures that reduce market prices of electricity for businesses and consumers, which do not affect trading conditions to an extent contrary to the common interest,” as approved by the European Council, which recognised the specificity of the Iberian energy market, given the limited interconnections with the rest of the EU.