Saturday, April 1

The Government hopes to leave the European Council with room to put a cap on the price of gas at least in Spain and Portugal

The Government hopes to leave the momentous European Council that begins this Thursday in Brussels with room to put a cap on the price of gas at least in Spain and Portugal. It is the formula that the Executive defends to achieve an instant reduction in the electricity bill, after the communication published this Wednesday by the European Commission has confirmed that the Member States will be able to introduce price limits on energy, although leaving the final decision in the hands of European leaders.

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Pedro Sánchez has been compared in the Netherlands to Don Quixote fighting against the windmills due to their demand to decouple gas from the price of electricity. And the Government sends the message that it will not relent in its efforts to allow Brussels to establish a ceiling on the price charged by combined cycle plants (which burn natural gas) in the wholesale market in the face of the runaway increase in recent months, even if it is through an exceptional authorization.

These plants would be compensated a posteriori, so as to mitigate the effect on wholesale prices of the exponential rise in gas, with a low weight in the Spanish electricity mix. But, given the reluctance of the northern countries, the measure could be applied only in Spain and Portugal. That is what the Government will demand in the event that there is no consensus that applies to the 27 and that it is complicated given the discrepancies between the countries of the north and the south.

How would you deal with that compensation? The proposal that the Executive sees as more viable, and that Portugal (which has its electricity market integrated with the Spanish one) shares, is to establish an ex post payment for these combined cycles. As the Portuguese prime minister, António Costa, said on Tuesday, “setting a reference price, with the payment of a differential at the market price” for these plants, “is a balanced solution that can solve the problem.”

Who would bear that differential? One option is to charge the electricity system, with the possibility of resorting to what is known as a tariff deficit, to defer payments in the future (with interest). Another option, government sources explain, is to do it through public funds. The electricity companies themselves have defended this option. The employers’ association Aelec, to which the two largest companies in the sector, Iberdrola and Endesa, belong, have asked that it be financed by European funds. However, in the Executive they maintain that the decision is not finalized. United We Can does not look favorably on compensation to large companies and, in fact, demands that they finance the increase in prices via tax increases, an option that the socialist wing has ruled out.

The Executive of Pedro Sánchez defends that, given the low level of interconnection of the Iberian Peninsula, Spain and Portugal could make that decision in an extraordinary way and with a limited validity in time, pending the most profound reform of the electricity market that it is expected for next May, when the European regulator, ACER, presents its conclusions. For now, and ahead of the summit that starts this Thursday, Brussels has presented a range of options, with their pros and cons, to intervene in the electricity market in the face of the energy crisis, exacerbated by the invasion of Ukraine decided by the Russian president. , Vladimir Putin.

At the moment there are great differences between the member countries on the measures to be applied. Diplomatic sources explain in Brussels that there are two groups of countries: those from the south, led by Spain and joined by Belgium, who are pressing to put a cap on energy prices and decouple electricity from gas; and others such as Germany, the Netherlands, Ireland or Denmark, which prefer to “accelerate energy efficiency measures, the implementation of renewables and interconnections”. The latter believe that the Spanish government’s proposal could “jeopardize the security of the offer and our independence from Russia” and “block progress in the objectives of the ‘green deal’”. These countries consider that capping the price of electricity can make energy producers take it to other places and “generate a huge problem of security of supply.”

The Government maintains that the setting of caps on the price of gas would have a limited duration and would be justified in the extraordinary moment that the market is going through and that it has nothing to do with the laws of supply and demand; but he maintains that it is a good formula for a significant and immediate drop in prices that are absolutely out of control and that are leading to stoppages in the production of some industries that cannot bear the rise in costs. Based on what is decided in the European Council, the Government will determine the complete package of measures to implement to face the energy challenge left by the Russian invasion of Ukraine and that will be approved on Tuesday 29 in the Council of Ministers, although Moncloa’s forecast is that Sánchez communicate them beforehand to placate the protests that are spreading as soon as possible.