Spain and Portugal negotiated what is commonly called the Iberian exception. It is an arrangement to cap the gas price, a move intended to lower electricity costs for consumers. After lengthy deliberation, the government approved the permitting measure. The European Commission later announced approval, confirming a cap that averages 48.8 euros per megawatt hour MWh for nearly a year. The total subsidy is set at 8.4 billion euros, divided as 6.3 billion for Spain and 2.1 billion for Portugal.
The measure spans about one year, extending to May 31, 2023. It funds subsidies paid directly to electricity producers to help cover fuel costs. The daily subsidy is calculated as the difference between the gas market price and the electricity market price. The gas price cap stands at an average of 48.8 euros per MWh during the precautionary period.
In the first six months, the price ceiling is 40 euros per MWh. From the seventh month onward, the limit rises by 5 euros each month, reaching 70 euros per MWh in the twelfth month. The subsidy is financed through charges linked to cross border electricity trading between France and Spain and through fees paid by Spain and Portugal to recipients of the measure, as explained by the system operator.
The wholesale price of electricity is expected to drop to about 130 euros per MWh, well below the 200 euros per MWh level seen in recent months. This decrease is projected to reduce consumer bills by roughly 15 to 20 percent.
Scope of reforms
The interim measure aims to lower electricity prices for consumers affected by rising costs, a consequence of the global energy situation. The vice president notes that the measure preserves the integrity of the single market. It gives Lisbon and Madrid a defined window to implement reforms that increase future resilience of the electricity system, aligning with broader goals set out in the European Green Deal to lessen the impact of the energy crisis on households.
Commission analysis highlights the plan as part of a broader security of supply and affordable energy effort. The prime ministers of Spain and Portugal, in parallel discussions, launched the Iberian exception due to limited interconnection and the high share of renewables in the region.
Adequate, necessary and proportionate
The European Commission assessed the measure under EU state aid rules, which permit targeted support to address serious disturbances in the economy. For the Iberian scheme the conclusion is that the intervention meets rules because of the distinctive characteristics of the Iberian wholesale electricity market. Limited interconnection capacity, high exposure of consumers to wholesale prices, and the strong role of gas in setting electricity prices make the situation particularly severe for Spain and Portugal.
Brussels concludes that the measure is sufficient, necessary and proportionate. It is designed to lower wholesale prices for consumers without distorting competition beyond what is needed to cope with the extraordinary price levels in the Iberian Peninsula. Officials also stress that the plan remains temporary through the end date of May 31, 2023, minimizing potential distortions in spot and forward markets. It is not expected to create cross-border restrictions on trade or discrimination between Iberian and non-Iberian consumers.