EU ‘in contact’ with Iberians on extending price cap for gas for power

  • Lusa
  • 28 February 2023

At issue is a mechanism applied since mid-May of last year to set ceilings on the average price of gas for electricity generation.

The European Commission is “in contact” with the governments in Spain and Portugal with a view to extending, after May, the operation of the so-called ‘Iberian mechanism’ that limits the selling price of gas for use in electricity generation, pending notifications from the two countries.

“The Commission is in contact with the Spanish and Portuguese authorities regarding the extension of the measure to reduce wholesale electricity prices on the Iberian market by reducing the production costs of fossil-fuel power plants,” states an official source at the European Union executive body in a written reply to a question from Lusa.

Asked about the extension, after May this year, of the exceptional and temporary mechanism for adjusting the production costs of electricity in the formation of the market price in the wholesale reference of the Iberian electricity market, the commission tells Lusa that “in general, it is up to the Member State to assess whether a specific measure involves state aid.

“If a measure constitutes state aid within the meaning of EU law, it must be notified by the Member State concerned to the Commission for assessment before any aid is granted to beneficiaries, unless it is covered by block exemptions,” it adds.

While declining to “comment further on the content of these contacts, nor prejudge their duration or outcome,” the official source stresses that the commission “is well aware of the difficulties caused by the current energy crisis resulting from Russia’s unjustified attack on Ukraine” and so is “willing to urgently assess the compatibility of the emergency measures in this context.”

Another source involved in the process explained to Lusa that the authorities in Spain and Portugal “have not yet formally notified the Commission of [their desire for an] extension of the measure.”

At issue is a mechanism applied since mid-May of last year to set ceilings on the average price of gas for electricity generation, which in the case of Portugal and Spain is around €60 per Megawatt-hour (MWh).

The mechanism, which is in force until the end of May this year, was requested of the commission by Portugal and Spain in the wake of the energy crisis triggered by the war in Ukraine, which put particular pressure on the market in the Iberian Peninsula, wihch has limited interconnection capacity to the rest of the EU.

Questioned by Lusa, Portugal’s Ministry of the Environment and Climate Action notes that, after a political agreement reached in January between Lisbon and Madrid to extend this mechanism, the two governments “continue to work together and with the European Commission with the aim of extending the validity […] beyond its initial time horizon of May 2023.

“It should be noted that, between 15 June 2022 and 31 January 2023, this measure generated a net benefit of more than 570 million euros and a reduction in the final price on the wholesale market of 43.78 €/MWh,” states the ministry in the response sent to Lusa, citing a “reduction of 19% in the price that would occur without the application of the measure.”

A source from Spain’s government, meanwhile, told Lusa that there was no timetable for when a formal request would be sent to the European Commission regarding this matter, while stressing that the two governments would submit it “at the same time.”

Since last May, a temporary mechanism has been in place to limit the price of gas used in electricity generation on the Iberian Peninsula until May this year, at a budgeted cost of €8.4 billion, of which €2.1 billion relates to Portugal.