The cap on the price of electricity awaits another extension beyond 2023: Brussels is already studying it and Ribera wants it "until it is necessary"

The Iberian mechanism, the limit on the price of electricity that last year managed to contain the cost of electricity in Spain and Portugal, could remain in place beyond December 31, the date on which it must expire. The European Commission is already studying a possible extension of this and other emergency measures that the EU took last year to cushion the energy price crisis and reduce its dependence on Russia that caused the war in Ukraine, in this case due to instability geopolitics, also with effects on energy, due to the situation in the Middle East. Before making a decision, the third vice president, Teresa Ribera, made it clear this Wednesday that Spain will support an extension “until it is necessary.”

“My natural inclination is that, given that it has not generated distortions in and has worked well, all measures should be extended until when necessary,” Ribera responded to a question from MEP Nicolás González Casares about the possible extension beyond the end of year of the Iberian mechanism and also of other measures such as saving gas or electricity consumption, facing next winter and in the face of the uncertainty that, once again, exists in the gas market due to the infrastructure sabotage that González has recalled that still exists in the Baltic or the “complicated geopolitical situation”.

Ribera defended extending the measures during an appearance in the Industry, Transport and Energy committee of the European Parliament, just one day after Energy Commissioner Kadris Simson stated that the Commission is already studying this possibility.. “We will consult with our services and if it is necessary to extend the measures, we are willing to do so,” he said.

At the moment, the EU does not need to buy more gas because its warehouses are 98% full. After reducing its dependence on Russian gas by 90%, diversifying suppliers and achieving a record deployment of wind and photovoltaics to partially supply it, it would face a calm winter from an energy point of view if it were not for the fact that the crisis between Israel and Hamas has I have come to remind you of the ups and downs of last year due to the war in Ukraine, which still continues.

For this reason, Brussels is analyzing whether to propose to the Twenty-Seven to extend the exceptional measures it took last year beyond December 31.. Then, the Member States committed to voluntarily cut gas and electricity consumption and make it mandatory if a shortage situation occurred in several countries that ultimately did not occur.. Thanks to this, the EU reduced its electricity demand by 18% last year.

Also emergency measures were the creation of a tax on energy companies, to redistribute part of their extraordinary profits, which Spain also extended to banking.. Equally important was the limit of 180 euros MWh at which electricity from a renewable or nuclear source would be paid if gas rose above that price again.

This last measure, which cost a lot to agree on in the EU and which has never had to be used afterwards, is the one that has just set a precedent for a possible extension of the other measures.. The agreement on the reform of the electricity market that the Twenty-seven reached last week contemplates an extension of the cap of 180 euros for six months, until June 2024.

Containment of the price of electricity

Specifically for Spain and Portugal and after all a diplomatic offensive by their two governments, in March 2022 they obtained the green light to set a cap on the price of electricity that was generated with technologies other than gas, so, in exceptionally, the price of this raw material – which multiplied by five and six its price last year – would be decoupled from the rest of the electricity, produced with cheaper sources. The so-called 'Iberian mechanism' put a cap on the price of gas – and therefore, the rest of the technologies – at which all electricity would pay, compensating only the operators of the combined cycle plants for the real market price of gas.

The mechanism began in June 2022, in principle until May 2023, with an initial limit of 40 euros/Mwh during the first six months, which would then escalate to 48 at the end of 2022, but whose cadence was modified by the first extension that Spain and Portugal managed to extend it, not one year as Spain wanted, but another six months, until next December 31. The limit for October was set at 62 euros per megawatt and October would end at 65. This means that the Iberian mechanism would only be put in place to limit the price of gas when it exceeded these thresholds and what has meant that, with the drop in gas below the progressive limits for each month, it stopped being used for the first time in November 2022 and has not been activated again since February 2023.

In any case, the balance of its operation is that it has served to at least contain the price of electricity in Spain and Portugal compared to those it marked at the worst moments of the crisis in other EU countries.. The Government estimates savings for homes and industry at around 5,000 million, despite the fact that the more expensive the gas was, the higher the compensation that consumers had to pay for the difference between the limited price and the real price, which in On some occasions the savings were zero.

The Iberian mechanism has not been without controversy since its birth. The PP called it an “Iberian scam” and in its electoral program for the general elections last July proposed eliminating it. The electricity companies confronted the Ministry of Ecological Transition by passing on the electricity bill the cost of compensation for a new rate that had to be corrected.

In any case, the comparison during the second half of 2022 between the price of electricity in Spain and Portugal and countries such as France, Germany or Italy showed that the mechanism ensured that the high price of gas did not spread to the rest of the countries. electricity. Its best days were those in which there was a lot of photovoltaic or wind power, which were paid at the maximum price and therefore it was necessary to buy little gas, so the cost of compensation was low.

Decision in December

The price of gas is far from the peaks of 2022 but the conflict between Israel and Hamas is already generating tensions in gas production and transportation, in Israel and Egypt, and has already caused new price peaks that, without reaching the threshold of 62 euros in October -this Wednesday it marked 45 euros-. This has once again put Europe on alert, both governments such as the Spanish one, which already this year wanted to extend the Iberian mechanism throughout 2024, and institutions more reluctant to intervene in the market, such as the European Commission.

As he did when the drop in gas left this and other limits suspended a few months ago, Ribera defended this Wednesday a new extension as a warning to the market that the price of gas will not be allowed to run wild again and, with it, the price of all electricity, even if it is from cheaper sources.

Eliminating this and other emergency measures to contain the price of electricity, he said, “is also a signal to the markets that we will later regret.”

At the moment, the Commission is evaluating whether the situation makes it necessary to extend the emergency measures. If she decides to raise it, the European Energy Ministers will have to approve it before the end of the year, until Ribera will continue to be President of the Council. Taking into account what happened in the first extension of the Iberian mechanism, it is possible to think that the monthly caps on the price of gas would be reordered for the new period that was agreed upon.

The next and last formal meeting of the Energy Ministers will be on December 19, although Ribera has made it clear this Wednesday that he is not afraid to call other extraordinary meetings to move forward with this and other agreements still pending, such as the reform of the energy market. electricity or the directive to reduce methane emissions, which is currently being negotiated with the European Parliament.

“We end December 2022 with the Council building opening only for Energy councils. “I have no problem celebrating Christmas with all of you,” he warned.