Gas for electricity production: Spain obtains an energy price cap

Status: 05/14/2022 4:20 p.m.

The Spanish government has set a price cap for gas used to generate electricity. This measure should apply for twelve months and provide relief to consumers.

Von Franka Welz, ARD-Studio Madrid

The Spanish government is taking action against high energy prices and capping the cost of gas, which is used to generate electricity. Electricity bills for consumers and businesses that have a regulated electricity rate are expected to be nearly 40% lower. It is linked to electricity price swaps, and customers who benefit from such a tariff immediately feel every price jump. Government spokeswoman Isabel Rodriguez said it would bring calm to the economy and provide security and clarity.

Franka Welz

“Protection of consumers and industry”

The upper limit on the price of gas for electricity generation will initially be set at 40 euros per megawatt hour and will average just under 50 euros over the next twelve months – the price per megawatt hour is currently around twice higher. Teresa Ribera, Spain’s Minister for Ecological Change, explained that almost 40% of private households and 70% of industrial customers would be relieved. The measure offers protection to consumers, businesses and large industry.

Ribera also criticized the electricity companies: they had not reacted to the increase in electricity prices in recent months, but had simply made high profits. The most immediate effect of the price cap is that in the future only electricity produced with natural gas will be paid for at gas prices. “We also eliminate the contagion effect for the rest of the energy industry, the gas price effect. In addition, the extremely high profits of energy companies that produce at very low costs will fall,” Ribera explains.

Companies fear for their profits

Energy suppliers like Iberdrola fear for their profit margins, as they have so far made a lot of money with the existing system. Iberdrola operates large wind farms – wind and other renewables are relatively cheap to produce. However, the electricity is just as expensive as that from gas turbine power plants, because consumers benefiting from a regulated tariff under the current system still pay the price set on the stock exchange for the most expensive electricity produced – this that is to say the electricity produced with gas. Iberdrola boss Ignácio Sánchez Galán recently explained at an event that only idiots stay on this fare.

Sánchez Galán has meanwhile apologized for this statement with a post on Twitter, at least halfway. He would like to sincerely apologize if anyone has been offended by some colloquial expressions. It was a great embarrassment, Minister Ribera said. “I don’t think it’s wise for an entrepreneur to call their customers fools, especially in these circumstances,” she said.

Price cap also in Portugal

The price cap regulation is expected to be published in Spain’s Official Journal no later than Monday and come into effect the following day. However, final approval by the European Union is still pending before the gas price cap can be fully implemented. The price cap will be used simultaneously in Spain and Portugal. The two countries had obtained special regulations from the European Union which allow them to intervene in the electricity market for twelve months.

Spain decides to cap gas prices

Franka Welz, ARD Madrid, May 13, 2022, 3:56 p.m.

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