Spanish and Portuguese measure to lower power prices granted EU approval

The measure, which will be implemented by lowering the input costs of fossil fuel-fired power stations, has been approved after recognising the two economies are ‘experiencing a serious disturbance’ following the increase in prices after Russia’s invasion of Ukraine

Big Zero Report 2022

An €8.4 billion (£7bn) Spanish and Portuguese measure aimed at reducing the wholesale electricity prices in the Iberian market (MIBEL) amid the energy crisis has been given the green light by the European Commission.

The measure, which will be implemented by lowering the input costs of fossil fuel-fired power stations, has been approved after recognising the two economies “are experiencing a serious disturbance”.

It comes after the sustained increase in gas prices following Russia’s invasion of Ukraine, which has led to higher electricity prices across the EU.

In this context, Spain and Portugal notified the Commission of their intention to adopt a €6.3 billion (£5.4bn) and €2.1 billion (£1.78bn) measure respectively, with the measure applied until 31st May 2023.

The measure will be financed by: part of the so-called ‘congestion income’, i.e. the income obtained by the Spanish Transmission System Operator as result of cross-border electricity trade between France and Spain; and a charge imposed by Spain and Portugal on buyers benefitting from the measure.

The daily payment will be calculated based on the price difference between the market price of natural gas and a gas price cap set at an average of €48.8/MWh (£41.5) during the duration of the measure.

More specifically, during the first six months of the application of the measure, the actual price cap will be set at €40/MWh (£34).

As of the 7th month, the price cap will increase by €5 (£4.25) per month, resulting in a price cap of €70/MWh (£59.5) in the 12th month.

It is one of Commission’s emergency temporary measures, reducing spot electricity market prices for companies and consumers that “do not affect trading conditions to an extent contrary to the common interest”.

Executive Vice President Margrethe Vestager, in charge of competition policy said: “The temporary measure we approved today will allow Spain and Portugal to lower electricity prices for consumers who have been hit hard by the rise in electricity prices due to Russia’s invasion of Ukraine. At the same time, the integrity of the Single Market will be preserved.

“In addition, it allows Spain and Portugal some time to enact reforms that will increase the future resilience of their electricity system, in line with the Green Deal objectives and will ultimately mitigate even further the effects of the energy crisis on final consumers.”

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