European Union Agrees To Extend Gas Price Cap For Spain And Portugal Until End Of 2023
Spain News
Published: 28 March 2023 16:07 CET
The Spanish government has agreed with the European Commission to extend the ceiling for gas used to generate electricity until December 31, 2023, with a maximum price of 65 euros per megawatt/hour. A new royal decree-law will be approved by the Council of Ministers to adapt the existing law.
Spanish Energy Minister Teresa Ribera said on Tuesday that this extension would result in a gradual increase of approximately two euros per month. However, she added that the mechanism would not be implemented if gas prices in the international market remain stable.
Ribera also explained that the Iberian mechanism would be in place for seven more months if gas prices rise again. This mechanism aims to regulate the price of electricity in Spain and Portugal, which have been heavily affected by gas price fluctuations in recent years.
Last year gas reached an all-time high, up to 300 euros in August, having a huge impact on the Spanish economy. However, in recent months, gas prices have dropped by around 60 euros in February and approximately 40 euros in recent weeks, which is less than the fixed price limit. Mibgas forecasts suggest that gas prices in the international market will remain below 50 euros per MWh until the fourth quarter of 2023 and 2024.
Ribera emphasised that the government can convert the extension into law because there is already communicated support from the European Commission.
The government's decision to extend the ceiling for gas used to generate electricity aims to ensure that the price of electricity remains affordable for Spanish citizens and businesses.
The previous price cap will expire on May 31, but following the new agreement, it will now continue to be in effect until December 31.
The original version of the cap, which came into effect on June 15, started at 40 euros for the first six months and increased by five euros each month starting in November. The cap was set to reach 70 euros per megawatt hour in May, according to the decree.
A recent study conducted by the Esade Center for Economic Policy has shown that the Iberian mechanism saved an average of 209 euros for each household paying regulated energy bills in Spain during 2022. This led to an overall saving of nearly 2.1 billion euros for Spanish consumers, as well as a decrease in inflation by 0.3 percent in 2022.
The Spanish government has reported that the Iberian mechanism has helped save a total of 5.1 billion euros as of the end of February.
Spain and Portugal are pleased with the extension, but Ribera had previously expressed the hope that the price cap on natural gas would remain in effect until the end of 2024.
Last year, after prolonged negotiations, the two countries were able to persuade other EU member states to allow them to implement a cap on natural gas prices. The previous system resulted in higher energy costs, including cheaper renewable sources, due to the expense of gas.
Spain and Portugal also have relatively limited connections to the European power grid.
Recently, Spain's grid operator announced that renewable energy sources could contribute up to 50 percent of the country's power generation this year, a significant increase from the 42 percent contribution in 2022.
Sources
https://www.aa.com.tr/en/economy/spain-portugal-to-extend-price-cap-on-natural-gas-until-year-s-end/2857405#
https://www.reuters.com/business/energy/eu-agrees-extend-spain-portugal-gas-price-cap-until-december-31-2023-03-28/?rpc=401&
https://www.20minutos.es/noticia/5113619/0/gobierno-pacta-bruselas-gas-crezca-2-5-euros-mes-diciembre-no-aplicara-precios-actuales/
