The European Commission approved, on Wednesday, 8 June a Spanish and Portuguese measure to reduce wholesale electricity prices in the Iberian market by lowering the costs of inputs used in fossil fuel power plants.
The measure, worth €8.4 billion (€6.3 billion for Spain and €2.1 billion for Portugal), will take the form of a daily payment to electricity producers until 31 May 2023 to reduce part of their fuel costs for the benefit of final consumers.
The payment will thus function as a direct subsidy to producers and will be calculated by the Iberian operators on the basis of the difference between the market price of natural gas and a ceiling price for gas. This ceiling will be set at 40 euros/MWh during the first six months of the mechanism’s application and will then increase by 5 euros per month, reaching 70 euros/MWh in the last month, i.e. an average of 48.8 euros/MWh over the duration of the measure.
This will ensure “a gradual convergence with current market gas prices”, allowing electricity consumers to “progressively adapt to market conditions”, an EU official explained.
However, the Commission expects that the effect of the measure in terms of lowering the price of electricity production will lead to total savings greater than the share of the cost of the measure borne by consumers.
“There will be a difference between what the consumers will have to pay for the system work and what they will receive. If this is not the case, then the system will be stopped”, thus explained an EU official.
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The Iberian specificity
The Commission’s approval was eagerly awaited by both countries, which are particularly affected by rising energy prices due to their low level of interconnection with the rest of the EU.
Recognising this specificity, the Commission found the measure to be in line with EU rules allowing State aid in case of serious economic disruption (Article 107 TFEU).
In addition to being “appropriate, necessary and proportionate”, the measure is “strictly temporary” and “does not lead to any cross-border restrictions to trade or to discrimination between Iberian and non-Iberian consumers”, the institution also stated. (Original version in French by Damien Genicot)