Households with a regulated rate will pay the cost of 'capping' the price of gas on their electricity bill

The details of the mechanism that the Government has just approved to limit the price of gas for the electricity market, known as the ‘Iberian exception’. Especially the long-awaited:how will you pay the difference between what gas costs in the European market and the ceiling at which it can be offered in Spain and Portugal?

According to him draft Royal Decree which will be published -predictably- this Saturday in the BOE and to which EL ESPAÑOL-Invertia has had access, will be the electricity marketers with contracts indexed to the daily electricity market, as is the case of the regulated rate or PVPCthose that incorporate that cost in the electricity bills of its customers.

In other words, the compensation for the gas cap will have to be paid byyou customers with a regulated rate and indexed to the daily wholesale market. Regardless of whether it is households, businesses or industries.

Still, the Third Vice President and Minister for the Ecological Transition, Teresa Riberahas said that the measure, in general, has the purpose of “reducing the extraordinary benefits of electricity so that there are benefits for all”. A complementary decision to the reduction of gas, because if the matching price in the electricity market is no longer so high, the remuneration they receive also falls.

The objective is that the price of gas, which currently exceeds 110 euros/MWh, cannot offer more than 40 euros/MWh, during the first six months, and then, until the end of the one-year period, it will rise 5 euros/MWh .

This means that if the wholesale market price is closing at more than €200/MWh, it will drop to €120-130/MWh. The gas-fired power plants, combined cycles, cogeneration and coal plants They will continue to charge what is necessary to guarantee the electricity supply.

Ribera has also said that the measure will enter into force while waiting for the European Commission to formally adopt its support for the standard, which could be delayed until “about two weeks.” The measure will mean an immediate improvement for 37% of domestic consumers and 70% for industrial consumers.

Bureaucracy

“It is a merely bureaucratic procedure, because Brussels has already known the final text for a few days, despite the fact that the design of the mechanism has evolved with the negotiation process with the European Commission and Portugal,” sources from the Ministry for Ecological Transition have said. in a later meeting with the media.

Thanks to this measure, the price of the ‘pool’ will fall by around 38% in its average price, from 210 euros per megawatt hour (MWh) marked throughout the first quarter of this year to around 130 euros/MWh. In this way, the only electricity that consumers will pay at the cost of gas will be that produced with gas plants.

The measure will thus help to contain the escalation of prices and inflation and, above all, will act as a firewall against the volatility of gas prices derived from the war in Ukraine. Also will also facilitate the reform of the regulated rate -the so-called PVPC-, incorporating futures market price references.

The head of Ecological Transition and the Demographic Challenge has reiterated on several occasions that the objective of this measure, in addition to stopping the volatility and high prices of electricity, is to put an end to the so-called “profits fallen from the sky of the electric“.

Benefits fallen from the sky

In order to apply this measure correctly, electricity companies must provide “detailed” information on their ‘retail’ contracts, “not those signed with their marketer, but the actual contracts that consumers pay“, to control that this volume of “benefits is no longer paid by consumers”.

“Which does not mean that they enter into losses, they will continue to obtain benefits,” he stressed. In this sense, he has lamented that the electricity companies have not had “behavior more in line with the current situation” by making offers on the free market “more adjusted to the needs of households or industrialists”.

Since the entry into force of the Royal Decree Law, which does not apply the mechanism, marketers will have a within five days to offer a “fixed picture” of what is your market demand exposed to the ‘spot’ market and which part has hedges or fixed contracts.

Subsequently, there will be another period of seven days for the market and system operator to implement the procedures and systems for the application of the mechanism.

More electricity to France

The measure also has another direct consequence: electricity exports from Spain to France will multiply. The interconnections will have a net export balance.

There is more to see the futures of both countries to confirm this data. While in France prices hover around 500 euros/MWh, in Spain they have plummeted to 140 euros/MWh.

And the government wants to take advantage of the additional congestion rents that are going to be created at the border due to this greater French demand to reduce the impact of the compensation of the gas cap.

This measure will allow the temporary decoupling of gas and electricity prices in the Iberian Peninsula, which will thus benefit from an exception, as agreed at the European Council in March.

Modify the PVPC

Finally, the great novelty of the Royal Decree Law is that Europe asks to modify, within a period until October, the PVPC calculation methodology to incorporate references based on a basket of futures and daily and intraday market products.

This will combine stability with incentives for energy efficiency, storage and demand management. The new PVPC is expected to start being applied from start of 2023reported the cabinet led by Teresa Ribera.

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