In recent years, governments have been building a legal framework to intervene in the electricity market and curb the sharp peaks in consumption that marked the worst moments of the energy crisis. Spain introduced a series of price ceiling mechanisms to ease the burden on households and businesses facing rapidly rising bills. The system acts as a safety net, kicking in when needed, and by early 2024 it was slated to be phased out in line with European Union directives aimed at winding down extraordinary crisis measures as markets normalize.
The Iberian exemption, a mechanism that capped the price of natural gas used to generate electricity, expired on January 1. This reform capped profits for electricity producers at a ceiling price of 67 euros per megawatt hour and increased costs for energy generated from nuclear, hydroelectric, and renewable sources. As a result, there was no longer a blanket legal shield against sizable price surges in the electricity market.
With energy markets stabilizing and prices no longer at crisis-era highs, the European Union signaled that next year could see an extension only if warranted by ongoing risks linked to the war in Ukraine. The absence of a unified framework would have made it difficult to sustain measures such as the Iberian exception, which had effectively paused since February due to natural gas prices staying below the EU ceiling. Even so, the framework has historically helped maintain limited price protections in electricity contracts and prevented windfall gains.
Spain has actively pushed the EU to maintain some form of the crisis-era framework beyond the current year. Madrid has argued for a permanent extension until market normalization is complete, arguing that member states need tools to manage potential shocks without triggering widespread price upheavals.
At the same time, officials acknowledge that the energy market has shown signs of stabilization. Forecasts did not anticipate new shocks with rapid price increases, making the case for an open-ended extension of price caps less strong. The political stance now favors ending the temporary price limits while preserving a broader set of safeguards.
Goodbye to the double security net
If Spain and Portugal introduced the Iberian exception to cap gas prices used in electricity generation, other production technologies were shielded from a cascade of gas-price increases. The mechanism saved Spanish consumers more than 5.1 billion euros over a year and a half as wholesale prices cooled. Since late February, however, gas prices have stayed below the EU ceiling, and the Iberian exception has not been active. It remains a potential safety valve should gas markets tighten again.
Price ceilings on certain electricity products, in place for two years to curb extraordinary profits and prevent opportunistic price hikes, are also nearing their end. Spain had set lower ceilings than other EU countries by design, with ceilings around 67 euros per MWh when Brussels eventually approved a higher limit of 180 euros per MWh for all member states. The administration plans not to extend this mechanism, which expires on December 31. The system aimed to limit windfall profits when wholesale electricity costs spiked due to high natural gas and CO2 costs, costs that many generation technologies do not bear directly.
The government has already started broadening the social shield in anticipation of higher prices, a policy that will carry a substantial cost in 2024. If mandated refunds were required, they would count as a portion of the extra revenue earned from sales contracts above the ceiling, with industry estimates showing potential refunds in the vicinity of a billion euros over two years. Reports indicate that electricity producers have already returned hundreds of millions to the system as part of these safeguards.
A reduced social shield
With intervention measures winding down, the government plans a leaner social shield designed to protect households and firms from energy prices that remain elevated relative to long-term averages but have drifted away from crisis highs. The state has kept electricity and natural gas tax relief in place but will gradually raise rates compared to crisis-era levels. VAT on electricity is slated to rise from 5 percent to 10 percent in early 2024, while the electricity tax structure will see phased increases through midyear. In the gas sector, a temporary reduction measure known as the TUR will stay in force through mid-2024, with adjustments reflecting the ongoing economic and energy context. This policy mix aims to cushion vulnerable consumers while allowing the market to adjust.
As part of social protections, the government will maintain the enhanced electricity social bonus that offered substantial relief during the crisis and has kept broad support for vulnerable households. The measure also rolled out a temporary middle-class bonus designed to shield households from energy uncertainty. While implementation targeted up to 1.5 million homes, current participation remains below that goal. In parallel, the government extended prohibitions on cutoffs for essential goods for vulnerable families.
The broader intent is to balance ongoing protections with market signals. The policy framework continues to cap, but not completely eliminate, price movements in key segments of the energy market while preserving the incentives for investment in nuclear, hydro, and renewable sources. The aim is a more predictable, stable energy environment that reduces the risk of severe price spikes without stifling market dynamics.