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Keys | This is the system that promises to reduce electricity by up to 20% for households with a regulated rate | Economy

The President of the European Commission, Ursula von der Leyen, this Wednesday in the European Parliament.
The President of the European Commission, Ursula von der Leyen, this Wednesday in the European Parliament.JULIEN WARNAND (EFE)

The scheme devised by Spain and Portugal to reduce the pressure of natural gas on the electricity bill already has the community endorsement. After the approval of the European Commission, received months after what was initially planned in Madrid and Lisbon, the formula -of which there is no precedent- should begin to be noticed from next Wednesday (next June 15) in the Electricity bill for the ten million clients of the regulated market. As they have to renew with their marketing company, it should also be felt in those homes and companies that are in the free. These are the main points of the limit on the price of gas and coal for electricity generation:

How does it work?

The Spanish electricity market is of a marginal type: the price of electricity is set, in each time slot, by the most expensive source of production. Given that the brutal increase in gas prices in the last year, in which its price has increased fivefold, is the main factor in the growth of the electricity bill, limiting its price -at 40 euros per megawatt hour (MWh) at first, and 48.8 in the average of the twelve months of validity of the mechanism, compared to the current around 71 euros— will stop the climb dead in its tracks. And the overpayment of other generation technologies will be reduced, for which the cost has not changed and their income, on the other hand, has skyrocketed.

The difference between the price of gas on the market and the cap —if applied tomorrow, 31 euros per MWh: 71 euros minus 40— will be paid by the system itself. That is, consumers. However, the benefit to them of lowering the marginal price is so great that in net terms they will clearly benefit.

When will it be noted on the invoice?

The limit on gas (and coal, although this source of energy is already a minority in the peninsular electricity system) will be a fact in the daily auction next Tuesday. It will begin to be noticed in the wholesale market price and in the electricity bill from Wednesday.

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How much will the bill go down?

Much. Both the Government and the independent experts consulted in recent weeks by this newspaper initially calculated that the average daily price of electricity in the wholesale market (common to both countries) will go from around 200 euros per MWh today to around 130 euros . That is, a discount of more than 30%. Added compensation for gas and coal, the final price will be around 160 euros per MWh. The immediate reduction in the final bill of households and companies with a regulated rate will be somewhat lower: between 15% and 20%. In the short term, the incentive to move from the free market to the regulated one will be maximum.

Which customers will it affect?

To almost everyone. Although at first the option was considered that these compensations would fall on free market customers —who have had stable prices and, therefore, have not suffered as much from the recent escalation—, so that not only would they not benefit but that they would suffer a loss, the final scheme is not like that. “The reduction will benefit all electricity consumers: those of the PVPC [la tarifa regulada] They will notice it immediately. And those who have contracts with fixed prices will receive it if they renew or change them during the year the mechanism is in force, ”said the Ministry of Ecological Transition in May, an extreme in which it has been reaffirmed this Wednesday.

37% of Spanish households are in the PVPC and 70% of industrial consumers have a rate indexed to that price, so they will experience an “immediate” reduction in their receipts, according to the Government. “For other consumers, with fixed price contracts, the final reduction will depend on the conditions agreed with the electricity company, but they will obtain lower prices because the measure reduces the wholesale prices that serve as a reference.”

Why one year?

To be able to get through the toughest months of the coming winter with some ease, when the demand for gas in the northern hemisphere skyrockets and prices rise accordingly. The “firewall” —that is the term used by the Spanish Ministry for the Ecological Transition— in the face of what may happen in international markets will be 12 months from the moment Brussels gives the definitive approval.

Why is it important beyond energy?

With inflation on the verge of 9%, an unprecedented value in decades, the measure is essential to tackle the CPI. One of the components that has pushed this index up the most in recent months has been electricity and, given that only the evolution of the regulated tariff is taken into account in its calculation, the drop should be immediate.

What about the interconnections with France?

The initial proposal from Spain and Portugal included a double price matching system that prevented consumers from other member countries from benefiting from the mechanism that makes electricity cheaper on the Iberian Peninsula. This mechanism was also accompanied by restrictions on electricity exports. But these precautions have been dropped during the negotiation with the European Commission, and both countries will end up selling subsidized electricity to France and the rest of Europe.

However, there are two factors to think that the real impact of this subsidy on the pockets of peninsular consumers will be low. The first is the low rate of interconnection —this was, in fact, the main argument with which Madrid and Lisbon managed to carry out the so-called “Iberian exceptionality”— which naturally limits the volumes to be exchanged. The second is a novelty: the European Commission allows part of the congestion rents, which capture the difference in price between the Spanish-Portuguese and French markets, to be used to compensate households and companies for this involuntary subsidy to the neighboring country. France has been demanding more electricity than usual from Spain for months due to the technical stoppage of several of its nuclear reactors.

Will other countries follow the path of Spain and Portugal?

The interest is maximum, but very few can demonstrate to the EU —as the Iberian Peninsula has done— their status as an energy island, both due to the low level of interconnections and the high penetration of renewable energies. However, the Spanish Government believes that its plan may end up opening a spigot through which other States pass: “If it works, there will be other Member States that consider it,” said the Third Vice President and Minister for the Ecological Transition, Teresa Ribera, in a recent interview with EL PAÍS.

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