Electricity sales to France have surged in recent days after a government-supported mechanism to curb consumption was rolled out last week. The cross-border links between the two nations have been operating at full capacity, feeding power into the French market. French companies are benefiting from cheaper electricity sourced from nearby countries thanks to the gas price cap applied in Spain, and they are not bearing the full cost. The price relief is largely shouldered by Spanish consumers who ultimately pay the bill.
According to Aelec, the employers’ association representing Iberdrola, Endesa, and EDP, the surge in exports to France is putting downward pressure on the price targeted by the government’s plan and eroding savings for Spanish households. Adding to the early challenges in launching the gas cap is a summer heatwave that boosted electricity demand while renewable output was subdued. At the same time, gas-fired plants were relied upon more heavily as gas prices rose due to Russia reducing sales to major European buyers.
Top electricity players warn that higher exports to France contribute to elevated demand and, as the year begins, the Iberian exemption that caps gas prices used in power generation will limit interconnections between Spain and Portugal to routes that primarily serve the French market.
Estimates from Aelec indicate that Spanish electricity sales could reach France up to 25 terawatt hours over the next twelve months. This would push the annual balance of exports higher than in recent years and lift the demand for Spain’s electricity system by about 10 percent, with total output rising from roughly 256 TWh in 2021. The interconnector has been running at maximum capacity, though it has recently been trimmed from the usual 2,900 megawatts to around 1,200 megawatts in some periods to accommodate the shift toward France.
Pedro González, director of the Aelec association, noted that Spain’s grid will need to generate additional power to meet France’s uptick in demand. He warned that incremental production could require new gas-fired units, potentially pushing prices higher as these units come online and operate to satisfy the French appetite for Spanish electricity.
lower price than france
Since the gas cap was introduced, the wholesale market price for electricity in Spain has shown a marked decline. Before the cap, the market price stood at about 214 euros per megawatt hour. After the cap’s initial rollout, prices hovered in the mid-140s to upper-170s per MWh. In contrast, the French market swung between roughly 230 and 300 euros per MWh, encouraging French buyers to import as much as possible to take advantage of the relative savings in Spain.
Despite the price drop for the wholesale market driven by the gas cap, millions of households and Spanish firms face a market-based bill that continues to rise as compensation payments to gas plants are paid. These payments are higher than initially anticipated due to the swift ramp-up of gas generation and the surge in global gas prices. All told, compensation to gas-fueled generators adds to the overall cost in the wholesale price, preventing a more pronounced reduction in consumer prices. The result is a scenario where Spanish customers feel the direct benefit of the cap less than anticipated, while French consumers enjoy greater relief from lower prices in Spain. The imbalance also sustains higher demand in France and a slower drop in the Spanish market, with gas plants receiving higher compensation as they respond to the extra demand, and the anticipated savings diminished.
Industry leaders have voiced concern about this unintended consequence. They argue that the mechanism, as designed, allows French competitors to benefit from the pricing setup for electricity produced and exported from Spain without bearing the added cost of adjustments. This situation threatens the competitiveness of Spanish manufacturers and their ability to compete on equal terms with European peers.
Spain’s major energy users have urged reform of this aspect of the mechanism to ensure the savings are more evenly distributed and that Spanish industries do not subsidize French consumers. The Spanish Association of Large Energy Consumers seeks changes from the government and the European Commission to address the perceived misalignment so that the gains do not accrue primarily to France and its buyers. The electro-intensive sector, which includes large players such as ArcelorMittal, Acerinox, Sidenor, Şener, Ferroatlántica, and Tubos Reunidos, has emphasized that without timely adjustments, the competitiveness of Spanish industries could be eroded over time. (Source: AEGE and affiliated energy users)