Spain and Portugal propose capping price of gas to make electricity cheaper

Spain and Portugal propose capping price of gas to make electricity cheaper. Image - pixabay

Spain and Portugal are proposing to the European Commission a maximum price of €30 per megawatt-hour (MWh) for the price of gas burned by combined cycle power plants.

The decision to cap electricity and gas prices is part of the mechanism for the ‘Iberian derogation’ agreed last week by the European Council, according to Portuguese daily Publico.

The figure, which the Spanish Ministry for Ecological Transition has not confirmed, would function as a limit on the cost of fuel for fossil-fuel plants and is “a ‘normal’ price for pre-crisis times”, according to the document to which the newspaper has had access, which points out that the measure will be in force until December.

This cost will have to be “internalised by marginal technologies”, the most expensive ones, and will provide “lower” prices to the wholesale electricity market, according to the document that Brussels now has access to.

This is a temporary measure to prevent the very high gas prices (the Iberian benchmark, Mibgas, currently exceeds €110) from continuing to contaminate the Iberian pool shared by Spain and Portugal, where there is a high penetration of renewables from which consumers do not end up benefiting due to the design of the marginalist market.

This proposal is linked to “the exceptional circumstances that are causing serious economic difficulties” in both countries, the document explains. Today, March 31, Portugal’s INE announced that inflation reached 5.3 per cent in March, according to the leading indicator, compared to 9.8 per cent in Spain.

Spain and Portugal said: “The adjustment mechanism will only apply to marginal technologies” and in particular to apply to the Iberian electricity mix “to gas combined cycle plants, coal-fired plants and cogenerations.”

To calculate the necessary adjustment, they propose to set this reference price based on the Iberian gas market, Mibgas, so that producers with variable costs above 30 euros/MWh are compensated for the difference between this ceiling and the market value for the following day.

With this price, “it is guaranteed that the order of merit [the priority with which the different generation sources enter the so-called pool until demand is covered] is not altered, since all marginal technologies will receive the same compensation”, said the two states in the joint proposal. According to this order, the first technologies to enter are the cheapest (renewables), which have priority over the rest, and the most expensive ones enter later until supply and demand are balanced.


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Written by

Laura Kemp

Originally from UK, Laura is based in Axarquia and is a writer for the Euro Weekly News covering news and features. Got a news story you want to share? Then get in touch at [email protected]

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