Brussels approved last week the mechanism known as the “Iberian exception”, a system that introduces a cap on the price of gas in Spain and Portugal with the aim of lowering the electricity bill. The measure comes into force this Tuesday, June 14, and will set an average limit of 48.8 euros per megawatt for the gas used to generate electricity. This system will allow the electricity bill to be reduced by between 15 and 20% starting tomorrow, Wednesday, and it will begin to be noticed in the bill for next July, according to government calculations.

How much will the price of electricity be lowered in the electricity market?

The Vice President and Minister of Ecological Transition, Teresa Ribera, recalled that as of June 15, a lower price will be registered in the wholesale market that consumers will notice on their electricity bill for the month of July.

For an average receipt of 100 euros, capping the price of gas will imply a reduction in the receipt of about 15 euros, according to the vice president. In percentage, the forecast of the Government is that the reduction of the receipt will be from 15 to 20%. It should be remembered that Ribera came to rectify by reducing this figure, since in principle he estimated the cut at 30% of the bill.

How long will the “Iberian exception” be in force?

The limit on the price of gas was agreed with the European Commission for its application in Spain and Portugal until May 31, 2023. No extensions of this period are contemplated, Ribera herself has indicated that, in principle, Spain “will abide by committed” with Brussels.

How will the daily price at which gas is paid to generate electricity be calculated?

As reported by ABC, the daily price of electricity in the wholesale market will be calculated based on the price difference between the market price of natural gas and a limit that amounts to an average of 48.8 euros/MWh during the next 12 months. In detail, until next December, the real price cap will be 40 euros per megawatt hour. From the seventh month, the price will increase by five euros per month and will progressively reach 70 euros in the twelfth month of application of the measure.

How will this measure be financed?

The gas cap will be financed through so-called “congestion revenues” and a charge imposed by Spain and Portugal on buyers who benefit from the measure. According to estimates by the Community Executive itself, the electricity system will have to assume an extra cost of 5,500 million euros to compensate the combined cycle plants that generate gas to produce electricity.

How much will the price of daily electricity be from now on?

According to European estimates, an electricity price in the wholesale market of 213 euros per MWh is expected over the next 12 months without the application of this cap. With the introduction of the new mechanism and with an average price of 48.75 euros per MWh for gas, the price of electricity will drop to 126 euros MWh without including the extra cost of compensation to the plants and by 174.4 euros MWh with this surcharge.