Gas price caps in Spain and Portugal: The Iberian exception

Spain and Portugal have had a gas price cap since June. As far as energy is concerned, the Iberian Peninsula is largely isolated from the rest of the continent.

Two men stand in front of gas pipes

Enagas Liquefied Natural Gas (LNG) terminal in Barcelona Photo: Albert Gea/reuters

MADRID taz | While long debated in GermanySpain and Portugal had long since found a way to cap the price of electricity as to how the price increase in energy supply could be at least partially offset. Both countries have capped the price of electricity generated from gas since mid-June. “Iberian exception” is the name of this regulation, which Madrid and Lisbon have wrested from Brussels.

The reason that the EU Commission allowed this deviation from the European market guidelines: As far as energy is concerned, the Iberian Peninsula is largely isolated from the rest of the continent. Then only a few lines lead across the Pyrenees to France and thus allow an exchange with the rest of Europe. Portugal and Spain are connected via an electricity price exchange.

The mechanism of the lid is simple: Electricity from gas is fixed at 40 euros per megawatt hour (MWh). This increases month by month in five euro increments up to 70 euros. This ensures that electricity remains cheaper overall. Because the price of electricity on the electricity price exchanges is determined as follows: the last kilowatt required determines the overall price. All technologies, no matter how expensive the production costs actually are, collect this amount. This also applies to the renewables, which account for 53 percent of the electricity generation capacity in Spain and usually go into the auction with production costs of zero euros, or nuclear power plants that have long been written off, which also produce around a fifth of the electricity in Spain close to zero.

The last kilowatt usually comes from power plants that burn natural gas. If their feed-in amount is capped, the entire electricity price goes down. Of course someone has to pay for what the gas power plant operators miss out on. That is of course the end user. The difference between the cover and the actual price is passed on to him. But since gas only makes up part of the electricity production, it is still much cheaper.

According to the government, the wholesale price for electricity was around 37 percent cheaper over the summer than without a cap. With the additional costs of the energy producers who use gas passed on, the electricity for the end consumer is still around 22 percent cheaper than without the electricity price cap. At the beginning of the week, the wholesale price was around 110 euros per MWh. A year ago it was less than 50 euros.

In addition to the increased gas price, the persistent drought responsible for the price increase. Because the reservoirs on the Iberian Peninsula are empty, the hydroelectric power plants are largely at a standstill. This and the increase in electricity exports to France mean that, despite high gas prices, gas consumption in Spanish electricity generation has risen by around 83 percent in recent months. Like Spain, France is running dry and moreover, half of the nuclear power plants there are idle for maintenance.

Coupled thermal power plants are now also to be included in the cap regulation. These are power plants that generate electricity in large industrial companies with the heat required for production or generated. They use gas too. Sánchez hopes that around 400 industrial companies that have shut down or even stopped production will function normally again. This involves energy-intensive production, such as the paper, ceramics or brick industry. The new regulation affects 20 percent of the industrial gross domestic product and 200,000 jobs. In Portugal, this type of business has been included in the cap since the beginning.

In time for the winter, the government cuts the majority tax on natural gas from 21 to 5 percent. The more than 7 million households who subscribe to the regulated tariff – set every three months by the government – ​​save around 100 euros a year. According to the consumer associations, they spend an average of 677 euros a year instead of 789 euros. Of course, only as long as the gas price does not continue to rise.

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