The European Commission has today approved the mechanism called the ‘Iberian exception’ to limit the price of gas and lower the price of electricity in the Iberian Peninsula. The decision has been made after very intense work, given the complexity of the measure, and marks a milestone in relations between Spain, Portugal, and the Community institutions.
The BOE will publish an Order from the Minister for the Ecological Transition and the Demographic Challenge that will specify the date of application of the mechanism. It will be next Tuesday, June 14, and it will affect the cassation of the wholesale electricity market that will be held that day to set the prices for the following day, Wednesday, June 15. So that the electricity companies and the rest of the market agents have enough time to present the economic guarantees that support their operations.
The conditions of the Iberian exception
The Commission has approved the Iberian mechanism as outlined in Real Decreto-Law 10/2022, whose validation will be put to a vote tomorrow in the Congress of Deputies. During its 12-month validity, it will lower the bills of families and companies and protect them from the volatility of gas prices in international markets.
The Iberian mechanism is an extraordinary measure that is justified by the poor interconnection of the Iberian Peninsula with the rest of Europe, which is a disadvantage for its integration into the European market. The agreement reached with the Commission to implement the mechanism includes actively working to reverse this unfavorable situation.
Executive Vice President Margrethe Vestager, responsible for competition policy, said: “The temporary measure that we have approved today will allow Spain and Portugal to reduce electricity prices to the benefit of consumers, who have been seriously affected by the increase in electricity prices as a result of Russia’s invasion of Ukraine. At the same time, the integrity of the single market will be preserved. In addition, this measure allows Spain and Portugal to have a certain margin of time to adopt reforms that increase the future resilience of their electricity system, in line with the objectives of the Green Deal, and ultimately, further mitigate the effects of the energy crisis on final consumers’.
The Commission has assessed the measure under EU state aid rules, in particular, Article 107(3)(b) TFEU, under which the Member States may grant aid to specific companies or sectors to remedy a serious disturbance in the economy of a Member State.
The Commission has concluded that the measure is in line with EU state aid rules. In particular, the Commission has found that the measure:
- It differs from other forms of price intervention due to the particular circumstances of the Iberian wholesale electricity market. Specifically, the limited interconnection capacity of the Iberian Peninsula, the high exposure of consumers to wholesale electricity prices, as well as the high influence of gas in setting electricity prices have caused a particularly serious disturbance in the Spanish and Portuguese economies.
- It is adequate, necessary, and proportionate. Particularly, the measure will reduce wholesale electricity prices in favor of consumers, without affecting commercial conditions contrary to the common interest. On the other hand, the measure does not go beyond what is necessary to deal with the exceptionally high prices of electricity in the Iberian Peninsula.
- It is strictly temporary, as it will only apply until May 31, 2023.
In addition, the measure approved today minimizes the distortion of competition and avoids possible negative effects on the functioning of the spot and forward electricity markets. On the other hand, in line with internal market rules, the measure does not give rise to cross-border restrictions on trade or discrimination between Iberian and non-Iberian consumers.
On this basis, the Commission has approved the measure under EU state aid rules, which looks to be fantastic news for the energy industry here in Spain!