Iberian ministers to seek renewed cap on prices of gas for electricity

  • Lusa
  • 18 January 2023

The mechanism was requested by Portugal and Spain last March due to the energy crisis triggered by the Ukraine war.

Portugal’s minister of environment and climate action and his Spanish counterpart are on Wednesday expected in Brussels to submit a request to the European Commission for renewal of the Iberian mechanism to limit the price of gas for electricity production.

In comments in parliament on Tuesday, the minister, Duarte Cordeiro, revealed that the government intends to negotiate with the commission for the continuation of the mechanism, stressing that it protects industry otherwise exposed to a turbulent daily market.

“With regard to the Iberian mechanism, our starting position is to negotiate with the European Commission its extension, maintaining the existing conditions,” said the minister during a hearing in parliament on energy prices, at the request of the Left Bloc (BE). “For our country, for the industry that is exposed to the spot market, it is very positive.”

With this in mind, he said, he was to meet with his Spanish counterpart, Teresa Ribera, on Wednesday in Brussels.

At issue is the temporary Iberian mechanism in force since mid-June to limit the average price of gas used in the generation of electricity, which in the case of Portugal and Spain is about €60 per megawatt-hour.

The mechanism was requested by Portugal and Spain last March due to the energy crisis triggered by the Ukraine war.

Cordeiro rejected the idea expounded by Hugo Carvalho, a member for the centre-right Social Democratic Party (PSD) that the Iberian mechanism encourages the use of gas, at a time when the European Union’s stated goals include shifting towards renewable sources and away from fossil fuels.

The minister stressed that the increase in gas consumption resulted from the drought that Portugal faced last year, which reduced hydroelectric production, but that with the recovery of water in dams, with the heavy rainfall in December, “this element will be corrected” and this “will increase the benefit” of the Iberian mechanism “without creating any kind of incentive.

“The mechanism has an advantage for Portugal, which is to protect those who are exposed” to the daily market, he stressed, adding that this would ensure that the “benefit is always greater than the cost, by definition,” because “it will get non-expected gains from renewables and uses them to lower the market price.”

Asked if the mechanism benefits Spain more than Portugal, Cordeiro noted that “Spain had an economy [that was ] more unprotected” from energy price variations and “naturally benefits more” from this protection system.

“There is no problem with this,” he argued. “Simply the only evaluation we have to make is if we also gain from this protection. A protection that is not a detail, it is very significant.”, defended the minister.

An EU source has said that Cordeiro and Ribera have a meeting at the commission in Brussels at 11.30 a.m. local time. There is no indication whether statements will be made after the meeting.

Cordeiro on Tuesday announced in parliament that the mechanism had allowed for a 20% reduction in the price of electricity from its coming into force until the end of 2022, generating a benefit of some €489 million.