“Gas is the most expensive and defines the entire price. This market system no longer works. We have to reform it”, said the president of the European Commission. There is a new common sense in Brussels regarding the electricity market. For the first time since Spain promoted a year ago the idea of reforming a market that leads to the most expensive energy marking the price of the electricity bill at a time when gas is skyrocketing, the president of the European Commission, Ursula von der Leyen, has made a public plea, before the European Parliament, in favor of a reform that had not even been defended by the Commissioner for Energy, Kadri Simson, or the ACER report itself, the European regulators, who prefer to defend the benefits of the status quo , no matter how much the status quo is increasingly difficult to sustain over time due to the prices of the electricity bill.
“Electricity prices, energy prices are skyrocketing and we are doing a lot about it”, argued Ursula von der Leyen in the closing turn of the debate on the conclusions of the last European summit: “We have published a box of tools that many of our Member States are using to tax windfall profits and help vulnerable households and businesses. But we also know that this is a short-term relief that won't really change the structure of the market at all."
“And what is the problem with the structure of the market?” Von der Leyen asked: “That we have an electricity market designed in a way that was necessary 20 years ago when we began to introduce renewable energies. Thus, renewables are the ones that enter first because at that time they were much more expensive, and then came the rest of the energy, such as oil, gas, nuclear or coal. And the one that enters last, the most expensive, is the one that defines the price”.
“Today, the market is completely different”, continued Von der Leyen: “Renewable energies are the most profitable and the cheapest. And they go in first and then, last, the gas goes in. Gas is the most expensive, but it defines the entire price. This market system no longer works. We have to reform it, we have to adapt it to the new realities of the domain of renewables. This is the task that the Commission has now taken on. This is not trivial, it is a great reform. It will take its time. It has to be well thought out. But we have to take a step forward to adapt our electricity market to current conditions.”
Waiting for the Iberian exception
Madrid and Lisbon are waiting for the last go-ahead from Brussels to make the first political agreement of the European Council of March 25, in Brussels, a reality, after an intense summit of EU leaders who agreed to recognize Spain and Portugal as an Iberian exceptionality due to its minimal electrical interconnection with the rest of the countries –2.8%–.
From there, a month later, the vice president of European Competition, Margrehte Vestager, closed another political agreement, more specific, on the technical details.
But, since then, days have gone by without Spain and Portugal sending the formal proposal for evaluation by Brussels. After the European Commission itself claimed it, Madrid and Lisbon sent it at the beginning of May. And, as announced on May 9 by the Portuguese Prime Minister, António Costa, the European Commission gave its preliminary approval, in the absence of the final one, which has not yet arrived, although both governments expect it in the coming days, since the final proposal from Spain and Portugal arrived in Brussels on May 23.
"Although no formal decisions have been taken yet, the Commission has been in close contact with the Spanish and Portuguese authorities on the design of the measure," a spokesperson explains to elDiario.es: "Spain and Portugal have already formally notified the Temporary emergency mechanism to mitigate the impact of fossil fuel prices on the wholesale price of electricity in the Iberian Electricity Market. The aim of the legislation is to allow Spain and Portugal to take proportionate and temporary measures to address exceptionally high electricity price levels, while maintaining incentives for sustainable energy transition and preserving the integrity and benefits of the single market, without restrictions on cross-border flows. The Commission is committed to finalizing its assessment quickly.”
Brussels adds: “The main objective of the Commission is to reach legally sound decisions, urgently assessing the compatibility of temporary emergency measures in the electricity market through an accelerated procedure, while ensuring, as requested by the European Council , that the measures reduce the spot prices of the electricity market for companies and consumers, and do not affect commercial conditions contrary to the common interest. The Commission takes note of the very exceptional circumstances that justify the adoption of the mechanism, including its specific design and the limited time of application”.
The initial proposal from Spain and Portugal was to set a price of 30 euros per megawatt hour (MWh) for generation with natural gas, but they finally agreed with Brussels to raise that cap for combined cycles to 50 euros/MWh, which will be applied for a period of one year, starting with a lower figure of 40 euros/MWh. To achieve this political agreement, the idea that this price would be different for energy exports to France also had to be discarded.
The difference between the real price of gas and the fixed cap will be charged to consumers, but the result will be a significant net saving on the bill.
According to the vice-president Teresa Ribera, the measure will result in a 30% drop in the number of consumers covered by the PVPC, which is covered by around 40% of households and to whom the president of Iberdrola, Ignacio Sánchez Galán, called "fools" because they are paying more, although free market rates (more stable, but higher until this energy crisis) are already experiencing sharp increases, according to the Facua consumer association.
This last company is the one that has most openly opposed the measure, which has been very well received by the big industrywhich covers 70% of your electricity consumption in the pool.