The government approved a temporary price limit at an extraordinary Cabinet meeting held this Friday. The plan sets a cap on gas prices used for electricity generation, targeting roughly 50 euros per megawatt-hour (MWh). The measure is slated to take effect within twelve months. This is the Iberian exception requested by the European Council on Friday, 25 March, but its effect on consumer bills still depends on formal approval from Brussels after the implementing rule is published.
The immediate outcome is that only electricity generated from natural gas will incur the gas price, avoiding contagion to other technologies. This change aims to trim the extraordinary profits of electricity companies and lower the price for about 37% of households and 70% of industrial users, according to statements by Teresa Ribera, the vice president and minister for Ecological Transition, during a brief press briefing. She was accompanied by members of her team, including the Secretary of State for Energy.
The limit will start at 40 euros per megawatt hour for six months and then gradually rise month by month until it averages 48.8 euros per MWh of gas. In this way, the wholesale price of electricity is expected to fall to around 130 euros per megawatt hour, well below the 210 euros per MWh observed in recent months.
The vice president did not provide a precise projection for household bills, though she had previously mentioned a potential 30% discount for consumers. Estimates based on data from OMIE and the National Markets and Competition Commission (CNMC) suggest that, in the first month with the limit in force, the average user could pay roughly half of what they paid on their March bill, which was among the highest prices on record.
The measure was approved in parallel by the Spanish and Portuguese governments. Once both administrations have given their consent, the mechanism will be immediately submitted to the European Commission, which must obtain a decision from the College of Commissioners to implement the change. The plan aims to take effect the day after the official publication in the official state gazette, provided Brussels approves. The European Commission is expected to take about a week to ten days or up to two weeks for formal clearance.
Compensation
The difference between the cap range (40 to 50 euros over the period) and the actual gas price (currently around 80 euros) will be borne by consumers. The primary beneficiaries are those in the regulated market, roughly 10 million users, who will see the initial price reductions. Free-market customers with fixed-price contracts shorter than one year will also be covered as their rates are renewed.
Officials emphasized that this is not the first time the government has shouldered such costs. Past crises, including the financial downturn and the real estate slump, have prompted different financing approaches. The current measures target reducing extraordinary profits for energy companies so that the benefits reach all consumers. The electricity market operates on a marginal pricing system where the most recently dispatched technology sets the price. When gas-fired plants are the marginal technology, all energy trades are priced at the gas cost.
Spain was among the first to raise concerns about how the electricity market was functioning amid rising prices last summer. Although Brussels initially resisted changes, the Ukraine conflict added pressure to revisit the issue. On 25 March, Prime Minister Pedro Sánchez left the European Council with support for what became the Iberian exception. A political agreement with the European Commission followed a month later in April. Ribera noted that Spanish proposals continue to influence European discussions on energy price responses, and Spain proceeded with a policy of limiting the benefits for sub-marginal power plants, including renewables, nuclear, and hydro, in light of rising natural gas costs. The European Commission’s recommendations on handling the energy price crisis were cited as a key reference in these moves.