Congress validates the royal decree to lower the cost of electricity in Spain

A Plenary session of Congress has approved the Royal Decree that will lower the price of electricity in Spain and Portugal.

After the European Commission granted its approval for Spain and Portugal to cap the price of gas, the Plenary session of Congress has today, Thursday, June 9, validated the Government’s Royal Decree-Law 10/2022, “by which a mechanism for adjusting production costs is temporarily established to reduce the price of electricity in the wholesale market”.

The measure will come into force from next Tuesday, June 14, and will begin to take effect on Wednesday, June 15. Initially, the impact will be felt by consumers subscribed to the regulated rate, but little by little it will also affect those who are in the free market.

With the price of energy skyrocketing due to a number of factors, this proposal attempts to correct one of the defects of the marginal system that governs the electricity market. Natural gas is the most expensive source of energy and it controls the final price in the wholesale market.

For this reason, the intention of this decree is to set a limit on the price of gas at €40/MWh. Over the course of a twelve-month period, this will increase to €70/MWh. This is also designed to eliminate the ‘extra income’ obtained by the rest of the sources, whose production costs are much lower and benefit from the increase in the price of gas.

However, that limit is set, but the system itself will be responsible for paying the difference between the real price of gas and the €40 ceiling.

It should be noted that the Government began with much higher expectations of this mechanism. Initially, the forecast was that household electricity bills would be reduced by 30 per cent, but now the government has estimated that it will be 15 per cent.

Teresa Ribera stated that she believed this decree will reduce inflation by about one point, although it is now above 8 per cent, so inflation would still remain very high.

➡️VP @Teresaribera ha defendido en el @Congreso_Es la convalidación del Real Decreto-Ley 10/2022 que regula el Mecanismo Ibérico para limitar el precio del gas y rebajar la electricidad

👉El @EUCouncil reconoció la singularidad del mercado ibérico por la baja interconexión pic.twitter.com/f8hVD98MKe

— Transición Ecológica y Reto Demográfico (@mitecogob) June 9, 2022

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