Spain and Portugal’s gas price cap: implications for PVPC, wholesale markets, and industry funding

As Endesa sources relayed to Efe on Monday, the gas price ceiling proposed by Spain and Portugal is meant to curb wholesale market costs. The move targets benefits for certain customers, specifically those on regulated tariffs or PVPC, along with large industries that remain tied to wholesale prices.

In this context, attention is drawn to how the suggested cap of 30 euros per megawatt hour (€/MWh) compares with the actual cost to run gas-fed combined-cycle plants. The idea is that the system might shoulder some of these costs through the wholesale market and distribute them more evenly across other technologies.

The price of electricity rose by 45% and surpassed 237 euro/MWh

observers warn that fixed-price customers could end up bearing the burden through future price adjustments, even if they are protected by contracts at fixed rates.

Shifts in regulated market prices

Endesa notes see this as an unfair transfer of income, aiming to dampen the PVPC increase. They point to the National Institute of Statistics (INE) as the inflation benchmark used in the Consumer Price Index, while free-market contract prices are considered in the mix.

They recall calls within the power sector for changes to how PVPC is calculated to reduce the volatility customers experience. The regulated tariff, linked to wholesale prices, contrasts with experiences in other parts of Europe, and industry voices argue the government has not moved quickly enough to reduce customer exposure to market swings.

When exceptional circumstances require market intervention, a coordinated European gas-market step is seen as the only viable route to minimize distortions.

There is also a clear stance that electricity companies did not reject the government’s plan because their marginal output — hydro and nuclear — is sold well below the fixed price level in the pool, or wholesale market, indicating they would not see a loss by adjusting prices.

Other industry sources agree that government action could reduce PVPC, but would raise costs for fixed-price contracts.

Compensation for combined cycles

Sources estimate that the compensation for gas-dependent combined-cycle plants could reach between 10 and 10.4 billion euros per year under current conditions. If gas prices climb from the present level, the compensation bill could rise further.

Thus the central issue remains the unresolved problem of gas prices and their impact on the electricity mix.

Additionally, the measure appears to place greater emphasis on wholesale market dynamics within Spain’s economy than on the wholesale market itself.

While daily wholesale prices may ease, fixed-price contracts could see noticeable increases. It is noted that roughly eight out of ten electricity demand cases in Spain are settled at fixed prices, leading observers to argue that the measure socializes the problem rather than fully mitigating customers’ exposure under PVPC, including those benefiting from social tariffs.

Potential negative effects are also highlighted, such as the continued support for fossil fuels, slowed renewable investment, reduced incentives for marketers to adjust to cost shifts, and a potential uptick in country risk for Spain.