Iberian gas price cap to lift Spanish gas generation: RBC

Iberia's new price cap on gas for power could lift domestic CCGT burn by around 20 TWh/year, analysts at RBC said.

Resulting potential gas savings in France were estimated at 4 Bcm/year and may have been "the ultimate reason for the European Commission agreeing with this measure", RBC analyst Fernando Garcia said in a note, adding that Spanish gas exports to France could reach 7 Bcm/year over the year ahead.

"All Iberian integrated utilities should benefit from an increase in the load factor of their CCGTs given the significant gap between Spanish and French electricity prices going forward," Garcia said.

Spanish gas at the PVB hub for June was assessed by Platts at Eur74.65/MWh ($77.6/MWh) on May 13, down 8% on the day, S&P Global Commodity Insights data showed, with the price cap starting at Eur40/MWh.

Gas generation in Spain and Portugal was 105 TWh in 2021 with the fleet underutilized.

A limiting factor would be the 2.8 GW interconnector capacity to France, Garcia noted.

France traditionally exports to Spain, especially during the summer. But record-low nuclear in France and expectations of the measure approved May 13 have already seen net flows swing northbound.

Spain net exported 0.8 TWh in April to France compared to 1 TWh net imports in February before Spain and Portugal proposed the measure for the first time.

Generator subsidy

The gas price cap "is actually a subsidy paid to thermal producers: CCGTs, coal and cogeneration", which RBC calculates at an average Eur64/MWh.

The measure could mean wholesale prices in Iberia average around Eur140/MWh in the period, Garcia estimated.

"We calculate electricity bills would fall by half of that amount for those consumers," RBC said.

The measure will come into force once it has been approved by the European Commission, which could take up to two weeks.

The Eur40/MWh cap will increase by Eur5/MWh/month after six months to end the period at Eur70/MWh resulting in an average of Eur48.80/MWh over the 12 months.

Overall, the measure should not have any impact on Iberian utilities that sold electricity forward, although it might be positive for companies that are short in generation compared to supply (especially given the low hydro scenario) and negative for companies long in generation versus supply, Garcia said.

Under the conditions of the mechanism, gas generators will receive the difference between the day-ahead price and the cap divided by 0.55.

Consumers that benefit from the reduction will pay the adjustment amount.

Additional congestion revenues from the cross-border auction between France and Spain will be used to reduce the cost of the measure.

"We believe these revenues will be equivalent to the price differential between France and Spain," Garcia said.

"The new regulation would trigger an important reduction in the power prices in Iberia and an increase for the electricity exports to France," he said.