Government of Spain caps gas prices to lower electricity bills for households, businesses and industry

Moncloa Palace, Madrid

The Council of Ministers, in an extraordinary meeting, has approved the mechanism for adjusting production costs to reduce the price of electricity in the wholesale market.

Foto: Pool Moncloa/Fernando CalvoThe Minister for Territorial Policy and Government Spokesperson, Isabel Rodríguez, highlighted the importance of this decision, because by capping the price of gas sold to the electricity system, the electricity bill will be lower for all citizens, "families, households, small and medium-sized enterprises, the self-employed and, very importantly, industry".

Rodríguez also assured that the initiative would halt the upward trend in prices and provide certainty in an economic context conditioned by the war in Ukraine.

Furthermore, the spokesperson defended that the measure demonstrates the leadership quality of the President of the Government of Spain, Pedro Sánchez, in the search for "innovative formulas to tackle formidable challenges that we have never before considered that we have to overcome".

The goal, he added, is also to lead a structural change in European energy policy to protect the most vulnerable, safeguard the economy and consolidate employment.

Special protection system for 12 months

The Third Vice-President of the Government of Spain and Minister for Ecological Transition and the Demographic Challenge, Teresa Ribera, underlined the exceptional nature of this mechanism agreed between Spain and Portugal and the European Commission to respond to the challenge of gas prices and their impact on electricity prices.

First, because Europe has understood and accepted the specific circumstances of both countries, with very low electricity interconnection with the rest of the continent. Second, because "for the first time it is not the same people who are paying": while this type of situation has usually been resolved with a greater contribution from the State Budget, in this case the measures will reduce the extraordinary profits of the energy companies to make it easier for the adjustment to benefit all consumers. And last, because the Iberian area will have a special protection system for 12 months, which is particularly valuable in times of huge volatility and uncertainty.

Benefits for consumers and the economy

Foto: Pool Moncloa/Fernando CalvoThe Third Vice-President explained that, broadly speaking, the mechanism consists of a cap on the reference price of gas when selling to the electricity system. This cap will start at €40 per megawatt hour for six months and increase thereafter, month by month, to reach an average of €48.

Thanks to this cap, the average electricity price will fall significantly to around €130 per megawatt hour on average over the year, compared to €210 in the first quarter of 2022 (and with much sharper peaks).

The reduction - Ribera pointed out - will reach all consumers, who do not have to do anything to benefit from it. The effect will be immediate for consumers on the PVPC tariff - the hourly electricity tariff - and progressive for the rest, who will be incorporated into the mechanism as their contracts are updated, renewed or changed. When applied for a full year, all households and businesses - except those with a longer term contract - will benefit.

The decrease will also help to contain the rise in the CPI and mitigate the situation of industries that have had to reduce their demand and adjust production because they cannot afford to pay for electricity.

Entry into force

The entry into force of the regulation will be on the day following its publication in the Official State Gazette. The Third Vice-President clarified that it will also be necessary to wait for the European Commission to formally adopt support for the regulation, which will be published in the official gazettes of both countries, in line with what it announced in the letter it sent last Monday to the governments of Spain and Portugal.

The electricity companies will have to provide detailed information on the real price paid by consumers, said Ribera, who also stressed the European Commission's commitment to monitor and even initiate measures to ensure compliance with interconnection obligations with our neighbours. The aim is to "ensure that, once and for all, Spanish and Portuguese consumers can share in the benefits of the internal electricity market", he said.

Non official translation