The government aims to keep the gas price cap in place during the energy crunch or until European Union rules are in place to reform the electricity market. The Iberian exception, which sets a ceiling on the gas price used to generate electricity in Spain and Portugal, is set to expire on May 31. Spain’s executive, however, is pushing for an extension that would last through at least the end of 2024.
Teresa Ribera, the Vice President and Minister for the Ecological Transition, confirmed the plan to preserve the Iberian cap because of the substantial influence it has had on lowering electricity costs beyond the initial Brussels timetable. The government is pursuing a new regulation that would weaken the direct link between electricity prices and natural gas fluctuations, aiming to deliver steadier prices for households and businesses.
In an interview with Antena 3, Ribera explained that Madrid intends to maintain the Iberian exemption during the energy crisis or until the electricity market undergoes reform and European regulation is updated. She noted that the Spanish government seeks an extension beyond May, ideally through the end of 2024, to secure continued relief for consumers.
The mechanism agreed by the governments of Spain and Portugal with Brussels has been in effect since June 15 and currently imposes a cap of 40 euros per megawatt-hour on the price of gas used to generate electricity for the first six months, with gradual steps toward higher caps. The schedule includes monthly adjustments, culminating in a cap of 70 euros per MWh. Since January 1, the cap has stood at 45 euros per MWh, providing a buffer against spikes in gas costs.
Ribera emphasized that the government’s objective extends beyond a simple extension. It seeks to keep the gas limit at a level close to the current rate, ensuring a stable and affordable price trajectory. The intention is to preserve a price floor that remains as low as practicable, with targets around 45 to 50 euros per MWh, thereby dampening volatility for consumers and the market alike.
4,000 million savings
European wholesale electricity markets operate on a marginalist framework, where the marginal unit—the last generator needed to meet demand—sets the price for all power. Gas-fired plants often occupy this marginal position, and when gas prices surge, the entire electricity price climbs. This effect can drag down even cheap renewable or nuclear power sources that do not incur the same gas costs, translating higher gas prices into higher electricity bills for consumers.
Spain and Portugal implement maximum price offers only from gas-powered combined cycle plants within the electricity market. By decoupling the overall market price from instantaneous gas costs, the system reduces the direct exposure of consumers to gas volatility. Government calculations indicate that Spanish households have benefited from net savings exceeding 4,000 million euros, a result of the lower market price driven by the gas cap.
The Iberian mechanism has been designed to shield consumers while the market adapts to new regulations at the EU level. Advocates argue that the cap provides a necessary bridge, maintaining affordability as energy markets pursue reforms that aim to enhance reliability and transparency. Critics, however, warn about potential long-term distortions and the need for careful calibration as energy sources and contracts evolve in the coming years.
As discussions continue, authorities in Madrid and Lisbon stress the importance of keeping the cap aligned with market fundamentals and European policy developments. The overarching goal remains clear: protect households from extreme price swings during the energy transition while ensuring a smooth path toward a more integrated and stable European electricity market.