Negotiations harden in Brussels on the so-called “Iberian exception” to lower energy prices. The Spanish-Portuguese proposal to reduce the price of electricity by means of a cap on the price of gas will force to restrict the export of electricity to France, according to the documents sent to the European Commission by the Spanish government, to which EL PAÍS has had access . Spain has proposed as an initial solution a system of double price matching to differentiate the electricity consumed in the Iberian Peninsula and that exported to the community market through the Pyrenees. But the aforementioned documents show that this double round is not enough to prevent the subsidized electricity in Spain from leaking into France. It is also necessary to establish “certain restrictions” in some segments of the market, according to the texts presented by Spain and Portugal. Brussels fears that this limitation, no matter how minimal, will break the unity of the European market: Germany and the Nordic countries have clearly shown their opposition to the measure on the grounds of market unity, according to negotiating sources.
The Spanish Vice President, Teresa Ribera, and the European Commissioner for Energy, Kadri Simson, addressed the discrepancies between their respective technical teams last week in a telephone conversation. But the clash has not yet been resolved and the Spanish Government thinks that it will probably have to wait until the end of this month to receive the placet from Brussels, although the calendar is tight: the next meeting of the College of European Commissioners is scheduled for 27 April and that would be when the Commission will address the authorization of the Spanish-Portuguese model, although there may be adjustments to the initial proposal.
Limiting to 30 euros per megawatt hour (MWh) the maximum price of gas for electricity generation plants —combined cycle and cogeneration plants— would bring the average daily cost of electricity to 120 or 130 euros per megawatt hour; Negotiation sources suggest that Brussels will raise that figure. But the great debate with the Brussels technicians revolves around the scope of these restrictions on energy exports due to their political significance. Collaterally, Spain and Portugal also intend to extend the Iberian exception until the end of the year to modify the structure of the market and obtain more contracts in the medium and long term. And the model points towards financing that avoids generating more deficits in the system (the cost adjustment for gas is charged to the rest of the energy sources), which erodes the margins of the companies, which are lobbying Brussels against that idea.
The documents sent to Brussels specify a double price-setting mechanism that offers a result for exports, based on the usual formula, and another for the internal market, with capped gas. And, if this is not enough, the Government also clarifies in the texts sent to the Commission that this mechanism requires the introduction of “certain restrictions” in some market segments that are specified in “sending zero value signals in the interconnection capacity with France in the export direction”. The objective of these restrictions is to avoid distortions in the European electricity market and not to subsidize electricity in France. That, according to Brussels, can blur the single energy market. But Spain argues that the European partners have never worried about the low interconnection of the peninsula, which is reduced to 2.8%, and that with these figures the distortion is minimal, according to the sources consulted.
That is the crux of the matter. To defend its offer, Spain returns to the argument used by President Pedro Sánchez so that the European Council endorses the idea that the Iberian Peninsula is a energy island and, consequently, an exceptional treatment may be justified in exceptional situations such as the current one, of very high prices in the fossil fuel markets. “The interconnection capacity of Spain is the lowest in Europe (considering that the only possible way of integration with the central European electricity system is through France, the Spanish interconnection capacity is around 2.8% ), so, as a whole, the energy affected by these restrictions is considerably low”, defends one of the two documents that the Ministry of Ecological Transition has sent to Brussels.
This argument is complemented by the fact that the double price matching system only affects two market segments (intraday and replacement of reserves) in which “the energy negotiated […] is low compared to that traded on the daily market”.
He knows in depth all the sides of the coin.
Despite the undoubted complexity, this is the issue with the greatest political significance in negotiations in which the details have already been reduced and in which a political outcome is beginning to be glimpsed. In Brussels it is not ruled out that the file even requires an intervention by the president of the European Commission, Ursula Von der Leyen, who was the first community authority to recognize the Iberian exception after the European summit in March in which Sánchez stood up to start a solution ad hoc.
In the conversations with the Spanish Government, Brussels defends at the same time that the unity of the European market is maintained and that the price of electricity intervened in Spain does not cross the Pyrenees. A squaring of the circle that Madrid and Lisbon are trying to solve with the combination of export restrictions and that aforementioned “two-round scheme”. This mechanism “is not totally new in terms of European regulation”, the documents explain, relying on the community electrical regulation.
There is a lot we can do to help consumers. Working together to find the best solutions.@Energy4Europe
—Kadri Simson (@KadriSimson) April 13, 2022
In Brussels – with the EU Executive spurred on by the position of Germany and the Nordics – the proposal for restrictions is not quite convincing. This limitation “is no longer just a problem for Spain”, according to community sources. “Let’s say that it is accepted that flows be restricted: if a more interconnected country comes next, will it be able to ask for the same thing? There is a risk of breaking the internal energy market: this is the problem”, add the same sources. The Spanish Executive, on the other hand, argues that market unity in the European electricity sector is a fiction in the case of Spain and Portugal: the low level of interconnection (that quoted 2.8%, far removed from the 10% set as objective of the Union) prevents the Iberian Peninsula from benefiting from market unity. Biblical translation of the position of Madrid and Lisbon: you cannot separate what is not yet united.
The flow towards the Pyrenees and the benefits of electricity
In the midst of this debate, it happens that in recent weeks the Spanish combined cycle plants have been selling enough energy to the neighboring country to cover its demand. Quantities equivalent to two methane tankers per month are handled in the sector. At the moment, France has a part of its nuclear reactors stopped (70% of its electricity comes from this source) and this has caused prices to skyrocket to levels not seen in neighboring countries. For example, on April 3, the megawatt hour price reached 3,000 euros, a figure that almost multiplies by six the maximum reached in Spain just over a month ago (545 euros).
The Iberian proposal also includes some already known details, such as the claim that the cap on gas production (combined cycle and cogeneration) be at 30 euros, to which thermal power plants (coal) are also added, a technology that in Spain is hardly used anymore. That cap would result, with the pricing mechanism, around 120/130 euros per megawatt hour. The cost of this measure is borne by the rest of the production technologies (renewable, nuclear…), which, in principle, means limiting the profits of the electricity companies, something that they have not liked and is leading them to make an intense lobby work in the community capital. Vice-president Ribera has reacted against this: “We know that there are those who prefer that this not be applied and are insisting before the European Commission. It is a front that seems unfortunate to us.” She also dismisses criticism of the Spanish-Portuguese proposal from Iberdrola and Endesa. “We are honored that the benefits of the large electricity companies are greater in relative terms than in other Member States,” says Ribera ironically. “That’s not tolerable,” she adds. The Executive defends that the limit on profits would be causing less suspicion in Brussels, although the Commission has requested more explanations in this regard, as this newspaper advanced.
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