The European Commission has approved, under EU State aid rules, a €8.4 billion Spanish and Portuguese measure aimed at reducing the wholesale electricity prices in the Iberian market (MIBEL) by lowering the input costs of fossil fuel-fired power stations.
The measure was approved under Article 107(3)(b) of the Treaty on the Functioning of the European Union (‘TFEU’), recognising that the Spanish and Portuguese economies are experiencing a serious disturbance. The measure is in line with the Commission’s Communication on security of supply and affordable energy prices and the European Council conclusions, both from March 2022, referring to emergency temporary measures reducing spot electricity market prices for companies and consumers that do not affect trading conditions to an extent contrary to the common interest.
The Spanish and Portuguese measure
The sustained increase in gas prices following Russia’s unjustified attack on Ukraine has led to higher electricity prices across the EU. In this context, in May 2022, Spain and Portugal notified to the Commission their intention to adopt a €8.4 billion measure (€6.3 billion for Spain and €2.1 billion for Portugal) to lower the input costs of fossil fuel-fired power stations with the aim of reducing their production costs and, ultimately, the price in the wholesale electricity market, to the benefit of consumers.
The measure will apply until 31 May 2023. The support will take the form of a payment that operates as a direct grant to electricity producers aimed at financing part of their fuel cost. The daily payment will be calculated based on the price difference between the market price of natural gas and a gas price cap set at an average of €48.8/MWh during the duration of the measure. More specifically, during the first six months of the application of the measure, the actual price cap will be set at €40/MWh. As of the seventh month, the price cap will increase by €5 per month, resulting in a price cap of €70/MWh in the twelfth month.
The measure will be financed by: (i) part of the so-called ‘congestion income’ (i.e. the income obtained by the Spanish Transmission System Operator as result of cross-border electricity trade between France and Spain), and (ii) a charge imposed by Spain and Portugal on buyers benefitting from the measure.
More information: European Commission – Press release