Spain’s government has approved a new measure which will see the wholesale price of gas used for energy production capped at 40 euros per MWh (Megawatt-hour).
The move which was approved by the Council of Ministers on Friday will initially last for six months and will aim to contain the spiralling cost of energy.
The initial price will be capped at 40 euros per MWh for the first six months and will then increase by five euros per month from month seven.
By the end of the 12 month period, the average cost per MWh would be 48.8 euros with the price at 70 euros per MWh at the end of the year.
As a result of the measures, the price of electricity in the wholesale market is expected to fall by more than 30%. Over the next year, the average cost of electricity per MWh will fall from the current 210 euros to around 130 euros, relieving the pressure on both domestic and business users.
Deputy Prime Minister, Teresa Ribera said, "The reference price of gas will start at 40 euros for 6 months and from then on month after month it will grow to an average of 48.8 euros.
“We are covered for one year, it is an umbrella that allows us to be protected from the current great volatility in the energy markets. From now on, the only electricity that consumers will pay for at the cost of gas will be that produced with gas-fired plants.”
The announcement means that weeks of negotiations between Madrid and the European Union could be close to an end with the move also expected to be given the green light by Portugal on Friday allowing the two Iberian nations to set their own pricing outside of the bloc.
Spanish Prime Minister Pedro Sanchez initially attempted to garner support from other European leaders with the plan to overhaul the entire European wholesale market framework.
However, support was not forthcoming with Spain and Portugal having to settle for a temporary deal to reduce prices.
The Spanish government sees the measure as the best way to contain the country’s rocketing rate of inflation which in April stood at 8.3%. This is lower than March, but still at near-record highs.
The entry into force of the rule will take place the day after its publication in the Official State Gazette which is expected to be on Saturday.
Image Credit: La Moncloa