EC approves Iberian gas-for-power price cap extension to end-2023

The European Commission has approved under state aid rules the extension of the gas-for-power price cap in the Iberian market (MIBEL) to end-2023, it said April 25.

The governments of Spain and Portugal in March decided to extend and adjust the mechanism that caps the cost of natural gas for power generation that saved consumers around Eur5 billion ($5.5 billion) between June 2022 and January 2023.

"The price cap trajectory will be amended to provide a smooth and predictable phase-out, converging with expected gas market prices by the end of 2023," the EC said in a statement.

However, with wholesale gas price significantly below the cap over the past two months, the mechanism will act as a ceiling rather than cap for the final eight months.

Platts, part of S&P Global Commodity Insights, last assessed PVB month-ahead gas above the threshold on Feb. 6.

The May contract was last assessed at Eur34.23/MWh on April 24 compared to the cap set at Eur57.20/MWh for May.

Monthly increases are now limited to Eur1.10/MWh rather than Eur5/MWh steps as previously.

The EC first approved the measure in June 2022 with capped prices financed via "congestion income" as a result of cross-border electricity trade between France and Spain and "adjustment cost" imposed by Spain and Portugal on buyers benefiting from the measure.

The prices cap also optimized Iberia's spare LNG import capacity by reversing electricity flows northbound on the border with France with Spain's gas-for-power demand rising 53% on the year to 8.57 Bcm.

As such, year on year the country burnt nearly 3 Bcm more of gas for its power production, similar to 30 LNG cargoes.

Falling gas prices and improved hydro as well as French nuclear availability eased the trend in the first quarter, before a wave of strikes affecting French LNG imports and power production saw Spanish gas and power prices back at a discount even without the need for a cap.

Net power exports from Spain to France eased from a record 7.3 TWh in Q3 2022 to around 4 TWh in Q1 2023 with some 1.8 TWh net flowing north so far this month, system data showed.

EC approves Iberian gas-for-power price cap to end-2023

Source: European Commission