Iberian Electricity Prices and the Gas Cap: What It Means for Homes and Industry

Average electricity prices in the wholesale market are expected to fall this Wednesday by 22.6 percent from Tuesday, marking the first day of a measure aimed at limiting natural gas costs for electricity generation.

Data published by the Iberian Energy Market Operator shows an anticipated average price of 165.59 euro per MWh for this Wednesday, down from 214.05 euro per MWh the previous day. This represents the lowest level since May 29 and reflects the initial effects of the Iberian mechanism on the market. According to OMIE and Europa Press, the shift is notable as a response to the gas price cap for electricity production.

The highest hourly price on June 15 was observed between 01:00 and 02:00, with a range from 194.07 euro per MWh to a low of 144.17 euro per MWh during the 01:00 to 17:00 window. This pattern indicates that no hourly price would exceed 200 euro per MWh at any point during the day.

Still, not all of the pool price reductions will automatically reach consumers in the capped gas category this Wednesday. The operational compensation for cogeneration plants and combined cycles must be accounted for, which limits the full pass-through of savings to some households.

The hourly compensation, calculated from OMIE data, is expected to average around 59 euro per MWh today. Consumers on the regulated PVPC rate or those with indexed rates, even if they are in the free market, will bear these costs through the mechanism that supports eligible customers.

Thus, the regulated tariff price to be paid by households is projected to average 224 euro per MWh. This is nearly 6 percent below the 237 euro per MWh figure that would apply without caps on gas, a scenario driven by heat-driven demand and reduced renewable contributions, as market sources reported to Europa Press.

Large price reductions are not without consequences. Companies with fixed-price contracts renewed since late April face an estimated surcharge averaging 60 euro per MWh, reflecting the uneven distribution of benefit across market participants.

The recent approval from Brussels last week sets the Iberian mechanism to cap gas costs for electricity at an average of 48.8 euro per MWh over a 12-month horizon, effectively supporting the winter period when prices tend to rise. The mechanism allocates a price path for natural gas to generate electricity at 40 euro per MWh in the first six months, followed by gradual increases of about 5 euro per MWh per month until the measure ends.

Based on current data, government calculations indicate a reduction in the average electricity bill for consumers under the PVPC regulated rate by about 15.3 percent during the 12 months after the cap takes effect, according to the executive order and associated reports.

For industrial users who are exposed to the spot price, the government estimates a decline ranging from 13 to 20 percent in the first month of the mechanism, with variations over time as the cap takes effect.

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82 percent more expensive than a year earlier, the Wednesday average remains 82 percent higher than the level observed on June 15 of the previous year, at 90.95 euro per MWh. Pool prices directly influence the PVPC rate, which covers roughly 11 million households and acts as a benchmark for the remaining 17 million customers in the free market.

Official figures from the National Markets and Competition Commission confirm that in 2021 about 1.25 million people switched from PVPC to a fixed free-market rate as energy prices rose, illustrating a broader shift in consumer choices during the period.

What does it mean to separate the price of electricity from gas?

Electricity price calculators offer a practical way to see per-device costs. Clicking on any device yields the price per kilowatt-hour, helping households understand how consumption choices translate into bills.

STABILITY SINCE STABILITY

The market experienced a dramatic spike in early 2022 because of the invasion of Ukraine, with wholesale prices climbing to record levels before easing in the following months. Recent data show the price hovering around the 230 to 250 euro per MWh range, reflecting ongoing volatility in response to geopolitics and energy mix factors.

MONTH OF RECORD PRICES

February marked a high point in market prices tied to global events. The monthly average in March set a historic benchmark, with prices well above the levels seen in late 2021. The year that followed saw adjustments as policy measures and market dynamics evolved, influencing the average daily market price throughout the year.

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Wholesale market dynamics continue to shape the PVPC which covers about 11 million consumers in the country and serves as a benchmark for the 17 million who contract supplies through the free market. The Ukraine-Russia conflict is one of several factors that could push energy prices higher in the near term, and gas supplies to Europe may be affected by sanctions. To soften the impact of price increases, tax relief on electricity bills has been extended through the mid-year period. The rise in prices across much of Europe is influenced by higher international energy costs and the price of gas used in combined cycle plants, which is tied to the cost of carbon permits in the market.

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To mitigate the effect of rising electricity costs, authorities extended tax relief on electricity bills for the first four months. The broader market context includes upward pressure from international energy markets and the cost of gas used in combined cycle plants, linked to carbon emission rights. The ongoing conflict between the two major energy producers could push prices higher in the weeks ahead, particularly for gas as Europe navigates sanctions and supply security concerns.

2021 became the most expensive year of electricity

The year closed with an historical peak in the wholesale market due to the upward trajectory seen in the second half of the year, resulting in an average price close to 112 euro per MWh for the year. Early 2022 data show daily prices trending higher, with notable volatility tied to geopolitical events and policy responses. The government extended tax relief on electricity bills through late spring, including reductions in value-added tax and other levies to shield consumers. The temporary suspension of certain production taxes is scheduled to end in the near term, with details remaining under review.