Unsurprisingly, the Congress of Deputies approved extending the gas price cap through the end of the year, delivering 197 votes in favor, 148 abstentions, and a single negative vote. The European Commission had already given its approval in June 2022. The Iberian mechanism, negotiated by Spain and Portugal, creates a reference gas price designed to curb electricity costs. The measure began to show effects from Wednesday, June 15, and was initially set to run until May 31 of the current year. On March 28, the Spanish government confirmed a further extension through year-end, after obtaining Brussels’ consent. “The eight-month balance is very positive, and the average price of electricity in the wholesale market stands at 183.4 euros per megawatt hour, well below prices seen in France, Germany, and Italy,” stated Teresa Ribera, the third vice president and minister for the Ecological Transition. These points summarize the core elements of the mechanism. Members of the PNV and CKD had urged maintaining the extension through automatic triggers in case of emergency, and the plan was for a seamless continuation if conditions held.
How does the mechanism work?
The Iberian mechanism places a cap on the gas used to generate electricity. Gas-fired plants, including combined-cycle plants, coal units, and some cogeneration facilities, are compensated for the gap between the cap and the actual gas price. Consumers benefit because the overall price paid remains lower due to the strategy, while other technologies such as renewables and nuclear, which do not rely on gas, help keep costs down. The compensation is funded by the gas utilities and ultimately affects all electricity consumers. In France, revenues are used to offset this surcharge. The wholesale price plus the ceiling is designed to stay lower for all consumers, reducing the impact of high prices under the mechanism.
Why was it extended until the end of the year?
At the start of the year, Ribera announced plans to extend the mechanism at least through 2024, with the goal of keeping prices lower during volatile periods. Political and technical discussions followed between Spain, Portugal, and the European Commission’s Competition Department, led by Margrethe Vestager. In one January meeting, Vestager indicated that the maximum extension period could be prolonged, using the temporary Ukrainian-war framework as the reference. This established the December 2023 deadline that remains a reference point for now. The extension continues to be evaluated as market conditions evolve, with ongoing coordination between the relevant authorities.
What are the new changes?
Along with the extension through December, the previous rule noted that the cap started at 40 euros per megawatt-hour (MWh) between June and December 2022, rising by five euros per month into January and May, at which point it would reach 65 euros per MWh. A revised approach introduces a monthly adjustment of 1.1 euros per MWh beginning in April, aiming to reach the 65-euro ceiling by year-end. This adjustment reflects a more flexible mechanism designed to respond to market conditions while preserving price stability for consumers.
How much will you save?
According to the Ecological Transition Ministry, since its launch on June 15, 2022, the Iberian exception has yielded substantial savings for consumers. The difference between payments to electricity generators without the mechanism and those with the gas cap is the source of these savings. Overcompensation captured by other power plants that do not burn gas also contributes to the effect. A June 2023 ESADE analysis estimated that regulated-rate customers saved about 31.8% on average, roughly 209 euros per household, totaling about 1.88 billion euros for nearly 9 million customers. In a market where the retail price can follow wholesale dynamics, other customers should still benefit from the lower price ceiling as price references are adjusted by energy companies.
What happens if the gas price drops?
When the extension was announced, administrators noted that the mechanism might have limited practical impact if gas prices stay below the cap. In February, gas prices hovered around those lower levels, and by March they fell to approximately 55 euros per MWh. Teresa Ribera acknowledged that if gas prices stay subdued, the mechanism may not activate as frequently. If gas costs rise again, however, the measure can still help keep electricity prices reasonable and shield consumers from sharp swings driven by gas-market volatility. As of now, gas is well below the pre-war level, yet energy markets remain sensitive to geopolitical developments and price volatility, underscoring the value of the safeguard.
Why does the European Commission have to grant permission?
The EU Commission must approve the plan under state aid rules to prevent distortions that could harm other member states. Spain and Portugal worked closely with the Commission’s Competition Department, led by Vestager, to craft a formula that benefits Iberia without imposing undue effects on the rest of the bloc. Notably, electricity sales to France also benefit from lower prices, even though France is not required to pay compensation. Initially, Spain proposed a price with no export cap, but Brussels rejected that approach as too extreme, prompting a revised design aimed at protecting the broader EU market.
So does France also benefit from it?
France benefits through lower electricity prices in Spain. Last year, Spain posted a record-high electricity export balance, reaching nearly 20 billion euros. That energy is routed through interconnects to France, a flow described as congestion rents. Whether Spain or France is a net exporter, the resulting funds influence both markets, and in practice, sharing occurs as part of the broader coordination around the gas cap. The mechanism’s aim is to reduce the need for price adjustments driven by gas-market fluctuations, thus offering relief to households and businesses without compromising system reliability.