The cap on the price of gas and how it affects your electricity bill

Gas, electricity, petrol, water and food. Families across Spain are still faced with an avalanche of bills so high that they are already causing people to change their habits. The Bank of Spain says vulnerable households are being hit particularly hard, and many have been forced to give up certain everyday items in order to be able to pay their bills. Inflation jumped to a new all-time high of 8.9 per cent in July across Europe for the 19 countries bound by the euro, fuelled by rising energy costs – gas, electricity, petrol, the list goes on.

Measures taken by the Spanish government over the last 12 months to reduce the cost of the energy crisis have slightly limited the impact of high runaway prices in the wholesale market, but with the rie in inflation, these measures have not eradicated the problem with electricity prices sufficiently for consumers across the country.

As most are aware, electricity wholesale prices have increased in the first quarter of 2022 by 411 per cent in Spain and Portugal, 343 per cent in Greece, 336 per cent in France and 318 per cent in Italy compared to the same period in 2021, according to the European Commission

Sadly, there’s no sign of the energy crisis improving any time soon, as Europe prepares for the possibility that Russia will fully cut off its gas supplies in retaliation for Western sanctions over its invasion of Ukraine.

As such, an urgent, temporary measure in Spain has been taken to establish a cap on the price of gas used to generate electricity. This not only directly affects the wholesale market, but also will have an effect on your electricity bill for all consumers in Spain. The policy, which was approved by the European Commission in June 2022, will see electricity producers that use gas to generate electricity given a daily payment “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.

Cap on the price of gas: what it is, why, when and how this measure is applied

Spain currently enforces a one-year long cap on gas prices, agreed by the European Commission, which ensures they remain lower than an average of €50 per megawatt-hour.

  • What is it? – Gas used in thermal power plants to generate electricity has a new price cap. This measure was approved by the Government by means of a Royal Decree Law.
  • Why? – The aim is to reduce the prices of electricity in the wholesale market.
  • When? – It is an urgent, temporary measure, which applies from June 15, 2022 for the next 12 months (at the minimum it will last until 31 May 2023).
  • How? – The aim of establishing a cap on gas prices is to reduce the price of electricity in the wholesale market. But “putting a cap” on gas has a cost for everyone, since it is necessary to compensate those plants which will continue to buy gas in international markets. This measure will be financed by all consumers in accordance with the established regulatory conditions.

How the cap on gas prices affects your electricity bill

How does it affect you if you are in the unregulated market?

The cap on gas prices may appear on your bill in two ways:

  1. Red Eléctrica (REE) costs: from 15 June 2022, all electricity clients living in mainland Spain will see this cost on their bills (those in the Canary Islands, Balearic Islands, Ceuta and Melilla are exempt).
  2. OMIE costs: this cost is higher than the above and applies to all consumers in mainland Spain with INDEXED pricing, as well as those who have signed a new FIXED price electricity contract from 26 April 2022 onwards, as well as those who renew any contract in force or change any of the terms.  There are very few exemptions, please refer to the governmental information on the following links.https://www.boe.es/eli/es/o/2022/06/08/ted517
    https://www.boe.es/diario_boe/txt.php?id=BOE-A-2022-7843

These costs will appear on a line in your bill entitled ‘Gas Cap RDL 10/2022’. Other supply companies may use alternate wording or phrasing for this additional cost. Please see an example of an Energy Nordic bill below:

Will this measure remain in place forever?

No. This is an urgent and temporary measure that will be in force from 15 June 2022 until further notice.

When did the cap on gas prices come into effect?

It came into force on 14 June 2022 and has been applied since 15 June 2022.

Who will pay the additional cost for this measure?

“Putting a cap” on the price of gas involves an additional cost. It will be necessary to continue compensating the plants that need to be supplied with gas from international markets to generate electricity. This additional cost will be financed by all consumers across the country in accordance with the established regulatory conditions.

How will the additional cost for the gas price cap appear on my bill?

There is no fixed amount on each bill: it will vary according to energy demand.

The costs associated with the gas price cap will appear on your bill as “Gas Cap RDL 10/2022”. 

In bills for the regulated market (PVPC), the cost of this measure will be included within the energy term.

If I am a free market consumer, why do I have to pay for this gas price cap?

This gas price cap does not differentiate between markets and is an additional cost, decided by governmental entities across Spain and Europe that is shared amongst all energy consumers.

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