The European Commission approves the Iberian mechanism to lower the price of electricity | Economy

Spain and Portugal, crossed by a rampant energy price emergency, wanted to run as fast as they could; The European Commission, guarantor of free competition and the European internal market, has timed and measured each step. But finally the call Iberian exception, has achieved this Wednesday the approval of the Community Executive. The decision implies that the mechanism devised by Madrid and Lisbon to temporarily and extraordinary contain the rise in electricity prices – a measure already published in the official gazettes of both countries three weeks ago – can begin to function with the seal of guarantee that Brussels, after studying it thoroughly, sees it favorably.

Its approval by Brussels also culminates the turn of a European Union that is increasingly open to intervening and even renovating the electricity market, two concepts whose mere mention was until recently almost sacrilege. The president of the European Commission, Ursula von der Leyen, has demanded this Wednesday a “huge reform” of the system.

The mechanism, which will finally come into force on Tuesday of next week —several weeks after what the Spanish government initially stated—, initially sets a maximum limit for the gas that feeds power plants of 40 euros per megawatt hour ( MWh) during the first six months and then gradually rises, until reaching 50 euros on average during the 12 months of the period in which it would be in force. As of the seventh month, the maximum price will increase by 5 euros per month, which will give rise to a maximum price of 70 euros/MWh in the twelfth month, as specified by the Commission in a note this Wednesday.

The measure, which the Community Executive quantifies at 8,400 million euros (6,300 million correspond to Spain), will be financed in part with the so-called “income from congestion” (that is, the income obtained by the manager of the Spanish transport network as result of cross-border electricity trade between France and Spain), and also through a fee imposed by Spain and Portugal on buyers who benefit from the measure, according to the note.

The Spanish Government trusts that the emergency measure will allow a reduction of 22% in the wholesale electricity market and between 15% and 20% in the bill of consumers subject to a regulated rate (four out of ten) . Portuguese customers, according to estimates by the Government of this country, could have saved 18% on the electricity bill if the mechanism had been in force since January. The Official State Gazette (BOE) Spanish will publish this Thursday the order that activates the mechanism, which will also be voted on by the Congress of Deputies.

The decision comes two and a half months after the European leaders recognized during a summit at the end of March in Brussels the particularity of Spain and Portugal as an “energy island”; The unprecedented decision has made it possible to devise a mechanism to exceptionally intervene in the electricity market, limiting the contagion of high gas prices throughout the electricity bill. A month after the summit, at the end of April, the European Commission assured that there was an “agreement in principle” on the plan of the Executives of Pedro Sánchez and António Costa.

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Based on this provisional approval, both governments officially published their proposals a few weeks ago, but leaving their application on hold until they have the definitive endorsement of the Community Executive, and especially from its Competition department, led by the European Commissioner Margrethe Vestager , responsible for ensuring the proper functioning of European markets.

“The temporary measure that we have approved today will allow Spain and Portugal to reduce electricity prices for consumers who have been greatly affected by the increase in electricity prices due to Russia’s invasion of Ukraine,” said Vestager. through a statement. “At the same time, the integrity of the single market will be preserved.”

Von der Leyen wants to reform the electricity market

The turn of the EU in recent months in the field of energy prices is increasingly visible. Now the reform of the electricity market, demanded over and over again by countries like Spain since last summer, is a flag that the president of the European Commission, Ursula von der Leyen, is waving with enthusiasm. “This market system no longer works”, the head of the Community Executive defended this Wednesday in an appearance before the plenary session of the European Parliament in Strasbourg.

In his speech, Von der Leyen explained in detail how the marginal pricing system works to criticize its obsolescence. “We still have an electricity market that is designed in a way that was necessary 20 years ago, when we started to introduce renewables,” he criticized. “We have to reform it. We have to adapt it to the new realities of dominant renewables”. This task, which the Commission has taken on, he added, will involve a “huge reform”. “It will take time. It has to be well thought out. But we have to take a step forward to adapt our electricity market to modern conditions.”

The change of course, staged before the European Parliament, has been forging in recent months. Brussels has assumed that energy price inflation is no longer a negligible and circumstantial issue, as it maintained last September. The war in Ukraine has turned the European energy scene upside down, with runaway gas prices setting the pace for the inflationary dance in all corners of the EU. And it is no longer just the “toolbox” that the Commission proposed last autumn to help the most vulnerable households and businesses. “This is short-term relief that won’t really change anything in the market structure,” Von der Leyen acknowledged.

Already at the end of April, the EU was open to a review of the electricity market. The system “is not designed for an emergency situation” like the current one, acknowledged a report by the Agency for the Cooperation of Energy Regulators (ACER).