Spain, Portugal to cap wholesale gas prices until end of year

The European Commission has informally approved Portugal and Spain’s request to extend the so-called “Iberian exemption” mechanism. The measure, which limits the price of natural gas for electricity production, was originally scheduled to end in May, but it will now run until the end of the year.

The Portuguese government has revealed that the European Commission has informally approved its joint request with Spain for the extension of the so-called “Iberian exception” until the end of 2023.

The mechanism artificially reduces wholesale electricity prices on the Iberian Peninsula by capping the price of natural gas for electricity generation. It went into force in June 2022 and was scheduled to end in May 2023. However, the European Commission has now given the green light to maintain the mechanism until Dec. 31, 2023.

Portugal and Spain’s proposal includes a new progression of the gas price for electricity generation, from €55 ($60)/MWh in March to the limit value of €65/MWh in December, with monthly increases of €1.10/MWh.

Originally, the Iberian exception was designed so that the price of gas would be capped at €40/MWh until December 2022, and then subject to monthly increases of €5/MWh until May, when it would reach a value of €65/MWh. However, the price curve will now be smoother, with €65/MWh to be reached in December.

The new price caps until the end of the year are as follows:

April: €56.10/MWh
May: €57.20/MWh
June: €58.30/MWh
July: €59.40/MWh
August: €60.60/MWh
September: €61.70/MWh
October: €62.80/MWh
November: €63.90/MWh
December: €65.00/MWh

“So far, the mechanism has reduced the price of electricity by about €43/MWh, which has translated into a benefit for Portuguese customers exposed to the wholesale electricity market of about €570 million,” the Portuguese Ministry for the Environment and Climate Action said on its LinkedIn account.

The original Iberian exception required an investment of €8.4 billion – €6.3 billion for Spain and €2.1 billion for Portugal – according to a European Commission statement. It was to be financed by income from the Spanish transmission system operator related to cross-border electricity trade between France and Spain, and a charge imposed by Spain and Portugal on buyers that would benefit from the measure.

The investment that will now be needed for the Iberian exception extension has yet to be publicized.

This post appeared first on PV Magazine.

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