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Keys | It is a mechanism by which the government seeks to lower the price of electricity for homes and businesses.

Latest NewsKeys | It is a mechanism by which the government seeks to lower the price of electricity for homes and businesses.

Spain and Portugal will introduce into their legislation this Saturday in the form of a decree a cap on the price of natural gas that powers combined cycles and cogeneration plants. With this measure, which has received “tentative” approval from the European Commission – not yet final – both governments are aiming to significantly reduce electricity bills for homes and businesses. Savings that will be, yes, more in the Spanish case due to the design of the system itself. These are the most important points of measurement.

How it works?

The Spanish electricity market is of a marginal type: the price of electricity is set in each time interval by the most expensive source of production. Considering last year’s surge in gas prices, when its price quintupled, is the main driver behind the increase in the electricity bill, limiting its price to 40 euros per megawatt hour (MWh) in the first 48.8 years. the twelve-month average of the mechanism, compared to almost 75 current euros, will stop the escalation in its path. And the overpayment for other generation technologies will decrease, for which the cost has not changed, and their income, on the contrary, has grown sharply.

The difference between the gas price on the market and the ceiling – if applied tomorrow: 35 euros per MWh, 75 euros minus 40 – the system will pay itself. That is, consumers. However, the benefit to them from lowering the marginal price is so large that they would clearly benefit in net terms.

When will it be on the invoice?

It will be weeks before the measure has a direct impact on the monthly electricity bill. After preliminary approval by the European Commission, its final approval has not yet been received. After the publication in the Bank of England this Saturday, as well as its Portuguese equivalent, Diário da República, it will be “a week, 10 days or two weeks” before it becomes a fact, Ribera said. The reason for this delay is the final approval of the EU College of Commissioners, which will ensure that both official bulletins reflect exactly what was agreed in advance between Madrid, Lisbon and Brussels, without any additions.

He thoroughly knows all sides of the coin.


In addition to what the local performer can do, the decree will set a second deadline at the domestic level: the electric utilities will have five days to adapt to the changes, and the system operators will have another seven. Even if Brussels were to hurry, the gas restriction would not come into effect until June 1st.

How much will prices fall?

Lot. Both the government and independent experts consulted by this newspaper in recent weeks believe that the average daily price of electricity on the wholesale market (common for both countries) will rise from about 200 euros per MWh today to 120-130 euros per megawatt-hour. . That is a discount of more than 30%. In this range, Executive already includes gas compensation by the system itself.

Which customers will be affected?

Almost everyone. Although the option was first considered that these compensations would go to free market clients who had stable prices and therefore were not so badly affected by the recent escalation, so not only would they not benefit, but they would suffer. loss, the final scheme is not like that. “The reduction will benefit all consumers of electricity: [la tarifa regulada] They will notice it right away. And those who have contracts with fixed prices will receive it if they extend or change them during the year of the mechanism’s operation,” the Ministry of Economic Transition notes. “Only consumers with long-term, fixed-price contracts that expire after one year of the measure will not be affected.”

According to data provided by Ribera, 37% of Spanish households and 70% of industrial consumers are in PVPC and their incomes will “immediately decrease”. “For other customers with fixed price contracts, the final reduction will be subject to terms agreed with the electric utility, but they will receive lower prices as the measure lowers the wholesale prices that serve as a benchmark.”

Why one year?

To make it through the toughest months of the upcoming winter with ease, when demand for gas in the northern hemisphere is skyrocketing and prices are rising accordingly. The “firewall” – the term used by the Spanish Ministry of Ecological Transition – in the face of what could happen in international markets, will be in place for 12 months from the final approval by Brussels.

Why is it important besides energy?

With inflation above 8%, unprecedented in decades and the highest in 30 years in April, the move is needed to stem the rise in the consumer price index. One of the components that has pushed this index the most in recent months has been electricity, and given that it only takes into account the evolution of the regulated tariff, the fall should be immediate.

And what about the relationship with France?

The initial proposal by Spain and Portugal included a system of double price negotiation that prevented consumers from other member countries from taking advantage of the cheap electricity mechanism in the Iberian Peninsula. This mechanism was also accompanied by restrictions on the export of electricity. But those precautions were lifted during negotiations with the European Commission, and both countries will eventually sell subsidized electricity to France and the rest of Europe.

However, there are two factors that suggest that the real impact of this subsidy on the pockets of consumers in the peninsula will be low. Firstly, the low speed of interconnection – this, in fact, was the main argument with which Madrid and Lisbon managed to implement the so-called “Iberian exceptionalism” – which naturally limits the volumes to be exchanged. Secondly, it is a novelty: the European Commission will allow the use of a part of the income from transshipment, which reflects the difference in prices between the Spanish-Portuguese market and the French market, to compensate households and companies for this forced subsidy to the neighboring country.

Will other countries follow the path of Spain and Portugal?

Interest is at its peak, but very few can demonstrate to the EU – as the Iberian Peninsula did – its status as an energy island, both because of the low level of connectivity and the high penetration of renewables. Overall, the Spanish government believes that its plan could eventually open a faucet that other states will pass through: “If it works, other member states will consider it,” Ribera said in a recent interview with EL PAÍS. “The way we approached this issue is practically without precedent. It is incredible and very important that Europe has sanctioned this and that the proposals we have made inspire the European response to this environment of price volatility,” he added this Friday at a press conference after the Ministerial Council meeting.

What will be the impact of the agreement in Portugal?

After the approval of the new pricing mechanism at the extraordinary council of ministers, Duarte Cordeiro, head of the Portuguese Environment and Climate Protection Authority, said that this would allow for a fair distribution of benefits among consumers. “It limits price escalation, protects those most vulnerable, and summarizes the costs and benefits,” he said at a press conference in Lisbon, where he called the measure “unprecedented and even historic.”

Although consumers will also pay compensation for combined cycle plants if there is a difference between the base price and the price of natural gas purchased for electricity generation. Cordeiro did not specify how this would be transferred to customer accounts, although it would force the Energy Services Regulatory Authority (ERSE), which sets regulated rates, to update.

The Portuguese minister indicated that if this measure were in place from January, Portugal would save 18% on electricity bills. Future savings will also be for fixed-rate (free market) consumers as contracts, which are now being extended, will benefit from lower gas prices.

Why is electricity more expensive in Spain than in Portugal if the market is the same?

The first reason is the small number of consumers with regulated tariffs. Nearly 5.45 million Portuguese consumers (85.4% of the total) are on the free market and pay at prices negotiated with their marketers, saving them from bill fluctuations. But none of the 927,449 customers who were on the regulated market last January (ERSE’s latest bulletin) suffered the same impact on their electricity bills from rising gas prices as Spanish consumers. It has to do with pricing. In Portugal, regulated rates are set annually by ERSE, which may review them every quarter, while Spanish regulated market rates (PVPC) are directly related to the hourly dynamics of the wholesale market.

How big is the difference between the consumers of the two Iberian countries?

The latest ERSE report that analyzes prices is from the second half of 2021. During this period, electricity prices in Spain exceeded those in Portugal by 12% (non-residential) and 27% (residential). In contrast, Portugal is among the countries in the European Union with one of the electricity tariffs with the highest weight of rates and taxes for domestic consumers (this represents 46% of the bill compared to 33% in Spain).


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