At the close of the previous year, the government rolled out a mechanism to curb extraordinary profits by electricity producers. The aim was to stop price spikes driven by the energy crisis from boosting the income of power companies beyond reasonable levels.
The core objective was to prevent nuclear, hydroelectric, and certain renewable facilities from charging exorbitant prices for the electricity they generate. A rapid surge in wholesale prices, driven by natural gas costs and CO2 rights, placed these technologies at a disadvantage in a market that did not reflect their production costs.
The mechanism, launched by the state and tweaked several times since its debut, requires nuclear, hydro, and renewable firms to return revenue earned above a cap of 67 euros per megawatt hour, according to government calculations. The policy targets profits deemed excessive during crisis periods, ensuring profits align with market fundamentals rather than crisis-driven spikes.
The price ceiling went into effect at the end of October last year, remained in force throughout the current year, and was extended to cover electricity pricing through the end of 2023. Based on the amounts already returned by companies, plus forecasted adjustments for the remainder of the year and government projections for the next year, the electricity sector expects to refund approximately 800 million euros in total reductions.
Since the deduction system began, more than 400 million euros has been returned by firms for revenue in excess of the cap across existing contracts, with figures drawn from government data on the revenue adjustments reported by Prensa Ibérica group’s outlets from September 2021 to September 2022.
The National Markets and Competition Commission (CNMC), charged with cost and expenditure oversight in the sector, disclosed that between September and December of the previous year the reduction in revenue reached 131.8 million euros, though it has not publicly released further details on the policy’s impact on individual electricity groups since then.
During the current year, companies continued to contribute additional revenue to the electricity system, totaling about 270 million euros from January to September, according to insiders familiar with the liquidations that have been formalized to date. Industry projections suggest that revenues could accumulate to around 350 million euros for 2022, while the government’s own forecast for the following year places the figure near 330 million euros.
The government’s 2023 draft projections anticipate another round of reductions, with power companies expected to return roughly 330 million euros to the system. The draft, prepared for public comment by the Ministry of Ecological Transition under Vice President Teresa Ribera, outlines how system charges would be adjusted for the year ahead.
Electric Shock: State Intervention
The mechanism was first activated in September 2021, compelling some nuclear, hydro, and renewable producers to generate additional income beyond ordinary levels. Following a macro decree issued in response to the Ukraine crisis, the regime was broadened to cover all high-price contracts—those exceeding 67 euros per MWh—and steps were taken to tighten the enforcement framework.
A dedicated monitoring system was also created to ensure large power companies do not reap unexpected profits by shifting inflated prices through intra-group contract arrangements to the ultimate consumer. Refuting these charges, electricity firms argue that they sell their output under bilateral agreements at prices well below the wholesale market. They also point to proposals from Brussels that would set a ceiling around 180 euros per MWh for power from these technologies, far above the Spanish cap.
Initial estimates suggested that the government would recover about 2.6 billion euros from the sector through this mechanism. However, the data show that only around 400 million euros were collected in the first year, indicating that wholesale prices did not translate into sustained windfall profits for the producers—at least not in the six-month window cited at the outset of the program.
On the other hand, the government contends that the revenue-reduction scheme serves to curb electricity prices by preventing producers from locking in all new contracts and price updates at the 67-euro threshold simply to avoid triggering the clawback. The policy aims to align contract pricing with market fundamentals while safeguarding consumers from prolonged price distortions.