On June 15, the Iberian exception introduced a cap on the price of gas used to generate electricity. The goal is to lower the final price paid by consumers by preventing gas-driven spikes from pushing up all electricity technologies. Government estimates show that without this cap, wholesale electricity costs would be about 32% higher, and the measure has already saved Spanish consumers around 4.6 billion euros.
The Iberian exception works by charging gas and coal plants, and now some cogeneration facilities, for electricity based on the real price of natural gas, with no similar cap applied to other generation technologies. This creates compensation for periods when plants do not produce, a mechanism largely funded by Spanish consumers and, to a smaller extent, through charges paid by electricity companies for international interconnections that allow power to flow to France.
In total, thermal power plants received 6,560 million euros under this arrangement from June through December. OMIE, the operator of the wholesale electricity pool, reports these figures. The arrangement enables these plants to operate by linking their payments to the actual gas price, while not passing the same gas-driven costs onto renewable, nuclear, hydroelectric, and other technologies that sell electricity in the pool.
Of the total paid to gas-fired plants, domestic electricity customers who have regulated tariffs and some in the free market shouldered 5,968 million euros through six months of bills. The remaining adjustment was 592 million euros in the six months between June and December, rising to 619 million by January 30, plus some charges paid by electricity companies to use interconnections abroad. Electricity sales to France surged last year, and those congestion rents are ultimately passed on to French consumers.
From the moment the mechanism began, the extra gas plant costs were initially covered by large wholesale buyers and regulated-rate customers. Over time, these costs were gradually absorbed by free-market customers as rate terms were renewed or changed in their contracts.
Complaint from the electricity sector
Major electricity providers acknowledge that the government’s mechanism helps limit wholesale electricity prices. They urge changes to how the system operates, especially who bears the additional cost of gas-pricing compensation and the payments to gas and thermal plants. Spain and Portugal have requested a continuation of the Iberian exception beyond its May 31 expiration and want the extension used to implement these reforms.
The sector warns that the Iberian exception distorts retail electricity markets. The heavy compensation burden borne by customers with fixed-rate plans raises concerns because those customers now face variable costs tied to the gas price and plant utilization that were not part of their original agreements.
What matters most is who should cover the extra gas plant costs if consumers who benefit from lower market prices do not see those savings reflected in their fixed-rate tariffs. Utilities argue that in other European countries similar mechanisms exist and that the excess cost could be transferred to the state budget or absorbed by the electricity system as a whole.
4.6 billion euros in net savings
European wholesale electricity markets historically operated with marginal pricing, until reforms pushed by European rules began to reshape the landscape. During price surges caused by gas costs, gas-fired plants tended to set higher prices, pulling up the cost of electricity overall. This has been a central issue during the energy crisis as natural gas prices moved higher.
This Iberian exception caps gas prices used for electricity generation, averaging 48.8 euros per megawatt hour for a year, with the aim of lowering the overall market price. The price of gas remains the base for the plants that actually produce the electricity, ensuring they do not operate at a loss while enabling a transfer of some cost relief to consumers through a lower wholesale price.
Spain and Portugal limit offers from gas-fired plants to ensure the market decouples from gas prices to some extent. Government analyses indicate that Spanish consumers achieved net savings of 4.6 billion euros due to lower market prices, even after accounting for the 6.56 billion euros transferred to gas and coal plants as compensation.