The European Commission is conducting a careful review of how a price-cap approach could ease the pressure of gas costs on electricity bills. The Iberian mechanism, initially rolled out by Spain and Portugal and later discussed by EU leaders at the latest summit, serves as the starting point for this assessment. A preliminary report lays out figures to be debated by energy ministers at their Tuesday meeting in Luxembourg. Early Brussels estimates indicate that expanding the Iberian exemption across the bloc could save about 13 billion euros, though benefits would not be evenly shared because gas’s role varies across different energy mixes.
A guidance document from the Community Executive confirms that a cap of 180 euros per megawatt-hour on the gains from marginal energy sources such as renewables and nuclear has already been put in place. It is projected that roughly 70 billion euros could be raised under this framework. Extending a Spanish-Portuguese‑style mechanism could add another 13 billion euros to savings, reinforcing downward pressure on inflation. In response to requests from several Member States, Brussels also proposes setting a gas price cap for electricity generation that stood well above the Iberian Peninsula’s level—roughly 100 to 120 euros per megawatt-hour, compared with 48.8 euros per MWh in earlier targets. (European Commission briefing)
The Commission emphasizes that the subsidy level must strike a balance: it should help lower electricity prices while preventing gas plants from becoming economically appealing and disincentivizing alternative production methods. This concern is central to why some countries, including Germany and the Netherlands, have shown reluctance toward adopting the Iberian-style mechanism. The Commission notes that with current gas prices around 60 euros per MWh, such a mechanism would not yield meaningful results. (European Commission briefing)
prevent electricity leakage
Another crucial consideration highlighted by the Commission is the risk that subsidized electricity could flow to non-EU neighbors like the United Kingdom or Switzerland. If this leakage is not contained, gas-fired plants might see increased activity, potentially driving gas consumption up by billions of cubic meters. Addressing this requires agreements with beneficiary countries to extend the model beyond EU borders or to pursue a two-stage approach. Such options would entail significant changes to electricity market operations and could clash with existing international agreements that restrict higher export prices, including EU-UK cooperation accords. (European Commission briefing)
Moreover, the cost profile of the measure depends on the gas share used by each Member State. Countries that rely heavily on gas-fired generation face higher subsidy costs, with examples including Germany, the Netherlands, and Italy. In contrast, net gas-importing countries could benefit from electricity subsidized by other Member States, making France a likely primary beneficiary. Central and Eastern Europe is also expected to gain from a mechanism similar to Iberia. (European Commission briefing)
In contrast, nations where electricity generation is less exposed to gas, such as the Baltic states and parts of Scandinavia, would see smaller gains because the reform would have limited impact on long-term contracts. Brussels suggests that a Europe-wide cost redistribution plan might address these imbalances, though achieving it would be challenging due to data gaps and political hurdles. (European Commission briefing)
More permanent solution
Looking ahead, the European Commission believes market design changes could be proposed and implemented swiftly, delivering a durable response to the high volatility of natural gas in European electricity pricing. The aim is to reduce dependence on gas markets while ensuring consumers benefit from affordable renewable energy resources integrated into the electricity mix. The Commission underscores the need for rapid adaptation to limit the influence of Russian gas on prices. (European Commission briefing)
As discussions continue, the third vice president highlighted Spain’s willingness to back countries seeking relief measures. The statement framed the stance as a duty to support vulnerable states, reinforcing that the mechanism may act as a safeguard rather than a quick fix. If gas prices rise again, Spanish and Portuguese consumers would be shielded. There is also recognition that other countries with electricity systems heavily dependent on scarce gas and coal might seek a similar approach. (European Commission briefing)