13th Aug 2022

Brussels approves Spanish-Portuguese state-aid price-cap

  • After an intense debate in March, EU leaders agreed to grant Spain and Portugal the chance to set their own electricity prices (Photo: European Union)
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Spain and Portugal will be able to use €8.4bn in state aid to ease the burden of high energy prices on consumers living in the Iberian Peninsula.

The European Commission finally approved the so-called 'Iberian exception' on Wednesday (8 June), recognising that the Spanish and Portuguese economies are experiencing "a serious disturbance" due to an increase in energy prices following Russia's invasion of Ukraine.

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The state aid plan of €6.3bn for Spain and €2.1bn for Portugal is intended to reduce the production costs of electricity, directly financing part of the fuel cost of electricity operators, and, ultimately, the price in their domestic wholesale electricity markets.

In March, Spain and Portugal presented a proposal to the commission setting a maximum of €30-per-megawatt-hour for the price of gas.

But the commission agreed to set the price cap at an average of €48.8-per-megawatt-hour while the plan is in place, initially starting at €40-per-megawatt-hour for six months.

The measure will be running from 15 June until the end of May 2023, covering the period with the highest electricity consumption — autumn and winter.

The Iberian exception, which was agreed upon by EU leaders in their March summit responds to the limited interconnection capacity of the Iberian Peninsula with the rest of Europe — a factor which increases the exposure of consumers to price shocks.

Spanish prime minister Pedro Sánchez welcomed the commission's decision, saying that such a measure will immediately reduce electricity prices in households by up to 20 percent.

"[This decision] will also protect consumers against future price rises in coming months if the war in Ukraine goes on for longer or worsens," Sánchez said.

While the EU recognises the need for such temporary measures, the commission has also called on the Iberian countries to put forward reforms to make their energy systems more resilient.

The EU commissioner responsible for state aid rules, Margrethe Vestager, said the measure would also allow Spain and Portugal to reform their electricity systems in line with climate policies and "ultimately mitigate even further the effects of the energy crisis on final consumers."

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