Are Spain and Portugal right to stand apart? These two States manage for the time being to keep electricity prices three times lower than ours and most European countries. A few figures by way of illustration: on Saturday August 27, the tariff was €239.18/MWh in Spain and €239.18/MWh in Portugal, while it exploded to €659.94/MWh in France or another €659.94/MWh in Germany. No magic wand, such a price difference can be explained in two words: “the Iberian derogation”, a system which has enabled the two countries to drop out of the European tariff system.
Authorized by the European Commission, this measure, which came into force on June 15, provides for a cap on the price of gas, the price of which soars with the war in Ukraine, also contaminating electricity. It should be noted that gas represents between 20% and 30% of electricity production. This derogatory regime allows them to cap the price of gas used in the production of electricity at 40 euros per megawatt-hour over the next six months, with an average target of 50 euros over 12 months, i.e. almost half the cost average gas since January. During its first month of validity, the cap on gas contained the escalation of electricity by around 20% in Spain and 18% in Portugal.
By way of compensation, gas producers will receive the difference between the market price and the capped tariff at which it will be introduced into the electricity mix. The mechanism does not involve state aid, since the amount is paid by companies that have obtained significant profits with the rise in prices and by consumers. “This daily payment will be calculated on the basis of the difference between the price of natural gas on the market and a gas price cap set at an average of 48.8 euros / MWh for the duration of the measure”, explains the site. of the European Union. The measure will apply until May 31, 2023.
The objective of the Spanish authorities is to reduce household bills by 15 to 20%. In Spain, prices increased by 10.8% between July 2021 and 2022, according to figures from the National Institute of Statistics (INE) published on Friday August 12. A record rise since September 1984. Worried about hearing social anger rumbling in the streets, Prime Minister Pedro Sànchez tried to put out the fire with this mechanism, colliding with the country’s energy behemoths, Iberdrola and Endesa in the lead. . In total, Spain has mobilized “30 billion euros”, or “the equivalent of 2.3% of its gross domestic product” (GDP), since prices started to climb.
Same context in Portugal, heavily plagued by inflation. Consumer prices continued to inflate in July, rising 9.1% year on year, the strongest since November 1992.
If the two Iberian countries benefited from a derogation, it is because the prevailing European system was not favorable to them. As a reminder, the price of electricity is fixed on the European markets by the principle of “marginal cost”: this implies taking as a reference the price of the last production capacity used to balance the network, i.e. currently say that of gas-fired power stations. However, this mechanism strongly penalizes Spain and Portugal, whose energy mixes are mainly composed of renewable energies and which do not have access to energies from the rest of Europe, for lack of sufficient interconnections.
In concrete terms, the limited interconnection capacity of the Iberian Peninsula has played a role since Portugal and Spain exchange less than 5% of their production with the rest of the Old Continent via pipelines for gas or high voltage lines for electricity. In other words, Madrid and Lisbon form what is called an energy island, although the concept has been refuted by the president of Iberdrola, Ignacio Sanchez Galan. In addition, there is also “the high exposure of consumers to wholesale electricity prices, as well as the significant influence of gas on the setting of electricity prices”, completes the European Union to justify its agreement .
In addition to Spain and Portugal, several European countries, including France and Italy, aspire to an in-depth reform of the rules of the European electricity market, to dissociate the prices of electricity from those of gas in the the whole of the EU. An idea that divides Brussels because several states are hostile to it (Germany, Austria, the Netherlands, Denmark, etc.), preferring to rely on free competition, energy efficiency measures or reinforced network interconnections on the continent.
Could France benefit from a similar derogation to the Iberian Peninsula? France could not use the lack of connections as an argument, because it imports and exports electricity to five countries of the European Union.
In mid-July, the Iberian front struck again, refusing to show solidarity with Germany, opposing the Commission’s initial proposal for a binding reduction for each Member State of 15% of its gas consumption, to help Berlin. If they finally accepted under conditions, the countries of the South – which journalists had renamed PIGS (Portugal, Italy, Greece and Spain) in 2008 – reversed the balance of power.
