Spain and Portugal will introduce a special mechanism this Tuesday to cap the price of gas used to generate electricity, aiming to lower bills for millions of households and industrial customers alike.
Following final approval from the European Commission, Iberian authorities will establish the new framework. The move is expected to reduce electricity bills by roughly 15% to 20% for those whose rates are linked to wholesale market conditions. About 10 million households on regulated tariffs and roughly 70% of industrial clients buying electricity on the open market stand to benefit from this cap as it tempers the price pressure driven by wholesale dynamics. In short, the gas price cap should help curb the cost of the electricity mix for these consumers.
Simultaneously, the government will maintain a surveillance system put in place over the summer to prevent electricity contracts signed by suppliers from benefiting unduly from the crisis. The anti-crisis measures, part of the macro decree tied to the Ukraine war, will be extended through September 30, with further steps anticipated in the coming weeks to keep prices in check.
The executive has leveraged the macro decree to broaden the reach of price controls on electricity firms to avoid windfall gains amid volatile energy prices. The plan is to keep this oversight active through the summer to prevent sharp increases when new contracts are signed by energy companies, as confirmed by the Ministry of Ecological Transition and stated by Vice President Teresa Ribera.
Amid ongoing price volatility since last March, the regulator will persist with the policy that reduces extra revenues earned by some companies, covering all contracts signed at high prices (over 67 euros per megawatt hour, MWh). The ceiling remains at this level for the summer, meaning revenue from contracts above the maximum must be returned to the electricity system.
The government had signaled that it would extend the set of cuts beyond the summer if the energy crisis persisted and doubts remained about how prices are set. In an interview with La Vanguardia, Vice President Ribera confirmed the continuation of the cap and noted that although firms may adjust prices upward, they are not allowed to exceed 67 euros per MWh. She explained that this cap acts as a strong incentive to hold price increases in check while the current conditions hold. Attribution: Ribera interview noted in press reporting [Source: La Vanguardia].
Meanwhile, Yolanda Díaz, Vice President and Minister of Labor, announced that discussions are advancing with the Socialist faction within the government to include an extraordinary tax on electricity and oil firms in the draft anti-crisis decree. The plan envisions a temporary surcharge applied to the corporate tax rates for energy groups.
beware of electricians
Last autumn, the government introduced a mechanism that required some nuclear, hydroelectric, and renewable sources to return the so-called extraordinary income earned from selling electricity at inflated wholesale prices (driven by gas costs) and CO2 emission costs, which these technologies do not incur. Utilities argued that much of their production is sold under bilateral contracts at prices well below the wholesale market, a claim the government has scrutinized under the new measures.
In March, the macro decree extended the price controls to all new contracts, as well as revisions to existing contracts, so that if the supply price exceeds 67 euros per MWh, firms will face penalties and must reimburse the surcharge reflecting their embedded profits. The policy targets the premium charged by gas, which has surged, explaining why the industry should not be shielded from cost shifts they did not bear in their operating models.
That same month, the Ministry also established a specialized oversight mechanism meant to deter large utilities from hiding what has been described as windfall gains across the contracting chain. The major electricity groups, including Iberdrola, Endesa, Naturgy, EDP, and Repsol, often sell most of their output directly to their own marketers, with contracts embedded within their corporate groups. The government has chosen to monitor intragroup contracts closely, focusing on the final price passed to consumers, and intends to extend this oversight through the summer. [Citation: Government oversight framework communications and press briefings.]