The government defends its stance by noting that every factor that could delay the price-lowering measure has appeared at once, a situation that has fed a long-standing forecast that many had already inflated in the weeks prior. The long-anticipated rollout last Tuesday of Spain and Portugal’s joint plan to curb electricity costs—an effort that spanned Brussels for weeks until it finally received formal approval—delivered results that many found disappointing.
Initial hopes pointed to sharp drops in electricity prices thanks to what is called the Iberian exception. Spain and Portugal agreed to cap the price of gas used to generate electricity for a year, aiming for an average around 48 euros per MWh in the wholesale market, thereby depressing prices across the board and shielding consumers from the spillover effects of high gas costs. It was presented as a major technology-driven intervention.
Yet throughout the week, the price paid by roughly 10 million households on the regulated PVPC tariff and by industrial buyers in the wholesale market rose instead of falling. That outcome stood in stark contrast to expectations.
Industry representatives stressed that the government, which had promoted the gas cap with considerable fanfare, was undone by a mix of external pressures and cyclical dynamics. “Everything that could go wrong did go wrong. A heatwave kept pressing electricity demand, a cut in gas supplies to Europe tightened the squeeze, and the timing collided with the gas cap in the same week,” commented a leading industry director.
Come down… but don’t come down
Demand for electricity rose rapidly during the week as air conditioning use surged during a heat wave in Spain and as extraordinary exports of electricity to France intensified. At the same time, renewable generation fell short: low wind reduced wind power output, while haze and reduced insolation hurt photovoltaic and thermoelectric plants.
With more demand and fewer renewable sources, gas-fired plants stepped in to meet the shortfall, pushing gas prices higher as Gazprom cut gas deliveries to major European economies, contributing to a spike in costs. The scheme in place in Spain and Portugal also required compensation to gas plants to cover actual production costs, compounding the price pressure. Everything that could go wrong seemed to be happening.
During the week, electricity demand reached two consecutive record highs for gas-based generation, hitting about 770 GWh on Thursday and surpassing prior June 2008 records, according to Enagás, the gas system operator. In a few days, gas-fired plants and combined cycles accounted for more than 40% of total national electricity production, according to data from Red Eléctrica. Industry groups emphasized the role of natural gas in maintaining supply during a period of insufficient renewable output.
Since the gas cap took effect, the wholesale price—what producers, marketers, and traders use to plan next-day energy purchases—fell from a pre-cap level of about 214 euros per MWh. Yet prices for actual consumer purchases rose later as compensation payments to gas plants raised overall costs, offsetting the savings seen in the wholesale prices.
The compensation to gas plants, estimated in billions annually, is funded by Spanish consumers with regulated rates, while some customers on free-market contracts would also be affected as the mechanism works through the broader market. This structure has been debated, and policymakers note that French consumers do not bear the same compensation burden, even as cross-border electricity flows and interconnections influence market dynamics.
Without a hat, I’d go higher
Officials from the Ministry of Ecological Transition, led by Vice President Teresa Ribera, insisted that the current electricity price would have been much higher without the gas cap, arguing that the measured price represents a conservative outcome under abnormal conditions. Government calculations suggest that, without the cap, daily wholesale prices could have reached well above 240 to 300 euros per MWh. The ministry framed the cap as a tool to blunt sudden spikes and shield households and businesses from extreme volatility.
The government noted that electricity markets in other major European economies also experienced elevated prices during the week. They argued that the cap acts as a precautionary firewall in a period of volatile gas and power prices, reducing the risk of extreme costs for consumers.
Major electricity companies highlighted that while the gas price surge continues to dilute the impact of the cap, the measure still offers relief. They acknowledged that without the cap, wholesale prices would likely be even higher, and they pointed out that any long-term gains will depend on reducing reliance on gas through more renewable energy. Representing Iberdrola, Endesa, and EDP, the sector groups argued that the gas price spike remains the principal challenge to achieving sustained price relief for consumers.
A long-term measure
Analysts stressed the need for time to judge the full effect of the gas cap. An evaluation should consider more than a few days of data, as initial results can be distorted by temporary factors. One consultant noted that the mechanism may prove its value even if the early reductions appear modest, especially when cyclical pressures and international gas prices normalize.
The government projected a possible 15% to 20% reduction in electricity bills next year, noting the cap would be in place until May 31, 2023 for households on PVPC and for many industrial customers that buy energy on the wholesale market. Officials argued that cyclical international market forces and demand patterns would not be sustainable over the entire period, but that the mechanism would still yield meaningful relief.
Independent studies suggested that the program’s initial impact might be positive but modest. Some think tanks warned that the sharp rise in electricity exports to France may have amplified the cost of the measure, particularly if compensation for gas-fired plants is taken into account.
Slide the doubts
In the midst of ongoing debate, the results of the first week prompted questions about the measure’s effectiveness. The government signaled strict monitoring of wholesale-market behavior, with the National Markets and Competition Commission (CNMC) on alert to ensure fair play.
Officials stated that energy suppliers would face comprehensive oversight of their offers in the pool to prevent any actions that might disrupt the market. The administration noted that vigilance has long been a feature of competition policy and pledged to keep a close eye on developments in the days ahead. A historical reference pointed to a past instance where Iberdrola faced a price-manipulation case, underscoring the importance of market integrity and enforcement in such interventions.