Spain, Portugal begin process to implement gas price cap

Spanish and Portuguese authorities are working Thursday to implement price caps on natural gas after the plan was given the green light by the European Commission.

Spain published the new electricity market rules in its official state gazette on Thursday morning, which states that the measure will take effect on June 15.

Spain and Portugal have long been advocating for the need to cap natural gas prices in the wholesale energy market, as gas often drives up the price paid for all electricity sources, including cheaper renewables.

Besides the political triumph of being able to intervene in the Iberian electricity market, the two nations appear to have even convinced the European Commission about the need to reform the entire EU’s marginal energy system.

“We have an electricity market that was designed in a way that was necessary 20 years ago when we started to introduce renewable energy. At the time, renewables were much more expensive, … but today, the market is totally different. Renewable energy is the most affordable,” said European Commission President Ursula von der Leyen on Wednesday.

“Now, natural gas is the most expensive, but it defines the price of all electricity. This system doesn’t work anymore. We must reform it, … and that’s the task that the Commission has now assumed.”

Spain and Portugal will act as a testing ground for this reform. By capping the gas prices at an average of €48.8 ($52.2) per megawatt-hour, the price of all electricity, including that from renewables, should be cheaper.

Spanish Prime Minister Pedro Sanchez originally said the measure could reduce electricity bills by around 40%, but on Wednesday he said households and industry can expect to save around 15-20%.

The measure will cost €8.4 billion ($9 billion), according to the European Commission, and only last until May 31, 2023.