Spain, Portugal eased energy prices. Can they teach the EU?

Oct 19, 2022, 3:56 PM | Updated: Oct 20, 2022, 3:58 am
FILE - Operators work at Enagas regasification plant, the largest LNG plant in Europe, in Barcelona...

FILE - Operators work at Enagas regasification plant, the largest LNG plant in Europe, in Barcelona, Spain, March 29, 2022. Households and businesses across Europe have been suffering for months from soaring electricity prices, but Iberian countries Spain and Portugal have managed to free themselves from the EU pricing system and Spain says the benefits are noticeable. (AP Photo/Emilio Morenatti, File)

(AP Photo/Emilio Morenatti, File)

              FILE - Workers install solar planers on the roof of a house in Rivas Vaciamadrid, Spain, Thursday, Sept. 15, 2022. Households and businesses across Europe have been suffering for months from soaring electricity prices, but Iberian countries Spain and Portugal have managed to free themselves from the EU pricing system and Spain says the benefits are noticeable. (AP Photo/Manu Fernandez, File)
            
              FILE - Operators work at Enagas regasification plant, the largest LNG plant in Europe, in Barcelona, Spain, March 29, 2022. Households and businesses across Europe have been suffering for months from soaring electricity prices, but Iberian countries Spain and Portugal have managed to free themselves from the EU pricing system and Spain says the benefits are noticeable. (AP Photo/Emilio Morenatti, File)

MADRID (AP) — Households and businesses across Europe have struggled with high electricity prices for months, though they have fallen since late August peaks.

Electricity costs are intrinsically linked to natural gas prices, which spiked after Russia invaded Ukraine and drastically reduced flows of the fuel used to heat homes, generate power and run factories as the European Union sanctioned Moscow.

Spain and Portugal have managed to free themselves from the EU pricing system and say the benefits are noticeable. It is offering a lesson to the 27-nation bloc as it works this week on ways to temper energy prices going into winter.

While gas prices have fallen recently, helping bring down electricity costs, the winter heating season is ahead and there are uncertainties about supply and how cold it will get.

Here’s what to know about what has been dubbed the “Iberian exception” in Spain and Portugal and how it could influence EU discussions:

HOW DOES NATURAL GAS AFFECT ELECTRICITY PRICES?

Across the European Union, electricity prices are dependent on gas-fired power plants to fulfill demand and set prices. Each country’s energy sectors — renewables, coal, nuclear and gas — contribute what they can to the energy grid throughout the day. Countries try to rely on the energy they produce first but resort to burning imported gas to ensure the electricity demand is met.

Under the system designed in the early 1990s, the price of whichever energy source is most expensive in feeding the grid — nowadays, natural gas — is the one that establishes the price for each megawatt of electricity provided by all the sources. The system was designed to favor more cost-efficient technologies.

With prices having soared this year for Russian gas, which Europe relied on heavily before the war in Ukraine, the renewables, nuclear and other electricity generators have made massive financial gains from receiving the same price per megawatt as gas does, driving up the overall price of electricity.

WHY ARE PRICES DIFFERENT IN SPAIN AND PORTUGAL?

In a bid to stem high energy bills for households and businesses, Spain and Portugal joined forces earlier this year to ask the EU’s executive arm to allow them to skirt the bloc’s rules on how electricity prices are set.

They cited the large amounts of renewable energy they use, scant connections with the European power grid and small reliance on Russian gas.

The European Commission agreed to make an exception and let them alter how the price is reached. Spain gets most of its gas from Algeria, the United States and Nigeria.

HOW DOES THE IBERIAN EXCEPTION WORK?

Spain and Portugal agreed with the commission to separate the price paid for gas used in the energy mix from that paid for the less costly sources like solar, nuclear or hydroelectric power. Under the exception, while gas prices may rise to, say, 100 euros per megawatt, a maximum of around 40 euros is what is paid to providers of less expensive energy sources.

The mechanism is mistakenly referred to as a gas price cap, but in fact, the price paid for gas is not affected. Gas suppliers still get the market rate and gas is still the price-setter.

Industrial engineer and electricity expert Jorge Morales de Labra said the mechanism is more of a cap on the windfall profits of wind, nuclear and other energy providers benefiting from the high cost of natural gas.

WHAT ARE THE SYSTEM’S BENEFITS AND DISADVANTAGES?

Spanish Energy Minister Teresa Ribera says the mechanism has meant savings of 3 billion euros for consumers in its first four months. Prime Minister Pedro Sánchez this week went as far as to say electricity bills in Spain cost 35% less than in Germany and 70% less than in Italy.

Portugal’s Prime Minister Antonio Costa said Wednesday that the exception had lowered electricity prices by an average of 18%, compared with expected prices if it had not been enacted.

However, given that Spanish electricity is suddenly cheaper, neighboring France has started buying it. Portugal also imports Spanish electricity to make up for its drought-caused shortfall in hydroelectric power. This, ironically, has increased Spain’s imports of natural gas.

Spain is now burning double the amount of gas for electricity than it did a year ago, experts say, posing a problem for a country committed to sustainability and reducing dependency on fossil fuels.

And companies in Portugal say they are still hurting. The Portuguese Association of Large Electrical Energy Consumers said last month that the exception had only helped “mitigate” prices.

WHAT’S THE REST OF EUROPE DOING?

The EU is struggling to find a way to control electricity prices, but its dependency on imported gas and reluctance to be seen interfering in a free market has been hampering any deal. Proposals on the table at this week’s EU summit include a natural gas maximum price bracket, joint gas purchases and a reform of the gas market exchange.

For the moment, there is no plan to discuss extending the Iberian mechanism, but Commission President Ursula von der Leyen says the bloc should study the positive results of the model and whether it could be applied on a European scale.

Experts in Spain say the mechanism is not likely to appeal or benefit all EU countries as it chiefly favors those with a lower dependency on gas imports and a high reliance on sources like renewables, which is not the case in many EU countries.

France, for example, favors decoupling electricity and gas prices as it relies on nuclear plants for about 67% of its electricity — and on gas for about 7%.

Other countries like Germany, which relies heavily on gas, and Poland, on coal, are not likely to benefit much.

___

Associated Press reporters Raquel Redondo in Madrid and Barry Hatton in Lisbon, Portugal, contributed to this story.

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AP

Associated Press

Spy claims raised in Uruguay probe of ex-presidential guard

MONTEVIDEO, Uruguay (AP) — Two months into an investigation of alleged passport forgery involving the former security chief for Uruguay’s president, questions are expanding after a newspaper’s reports that prosecutors have also found evidence of political spying and blackmail against opposition politicians. Uruguay’s secretary of the presidency, Álvaro Delgado, and the deputy secretary, Rodrigo Ferrés, […]
21 hours ago
Associated Press

Today in History: November 30, birth of Winston Churchill

Today in History Today is Wednesday, Nov. 30, the 334th day of 2022. There are 31 days left in the year. Today’s Highlight in History: On Nov. 30, 1782, the United States and Britain signed preliminary peace articles in Paris for ending the Revolutionary War; the Treaty of Paris was signed in September 1783. On […]
21 hours ago
A protester holds up a paper which reads "Not foreign forces but internal forcers" and "Abuse of Go...
Associated Press

China vows crackdown on ‘hostile forces’ as public tests Xi

BEIJING (AP) — China’s ruling Communist Party has vowed to “resolutely crack down on infiltration and sabotage activities by hostile forces,” following the largest street demonstrations in decades staged by citizens fed up with strict anti-virus restrictions. The statement from the Central Political and Legal Affairs Commission released late Tuesday comes amid a massive show […]
21 hours ago
Former U.N. Ambassador and former South Carolina Gov. Nikki Haley speaks during an event sponsored ...
Associated Press

Haley signals 2024 openness despite pledge to back Trump

CLEMSON, S.C. (AP) — Nikki Haley, U.N. ambassador under President Donald Trump, said Tuesday that she would take the Christmas holiday to mull a possible 2024 presidential bid, contradicting her statement last year that she wouldn’t enter the race if Trump opted to run again. “We are taking the holidays to kind of look at […]
21 hours ago
Former Australian Prime Minister Scott Morrison, standing at rear, speaks during a censure motion a...
Associated Press

Australian Parliament censures former prime minister

CANBERRA, Australia (AP) — Australia’s former Prime Minister Scott Morrison on Wednesday listed his achievements in government including standing up to a “bullying” China as he unsuccessfully argued against being censured by the Parliament for secretly amassing multiple ministerial powers. The center-left Labor Party government introduced to the House of Representatives a rare censure motion […]
21 hours ago
Associated Press

Colombia asks for legal status for its people already in US

BOGOTA, Colombia (AP) — Colombia wants the Biden administration to grant temporary legal status to its citizens now living in the United States, noting its own efforts to address regional migration by hosting 2 million Venezuelans who fled their homes. Gustavo Petro, who was elected Colombia’s first leftist president in June, is committed to the […]
21 hours ago

Sponsored Articles

SHIBA WA...

Medicare open enrollment is here and SHIBA can help!

The SHIBA program – part of the Office of the Insurance Commissioner – is ready to help with your Medicare open enrollment decisions.
Lake Washington Windows...

Choosing Best Windows for Your Home

Lake Washington Windows and Doors is a local window dealer offering the exclusive Leak Armor installation.
Anacortes Christmas Tree...

Come one, come all! Food, Drink, and Coastal Christmas – Anacortes has it all!

Come celebrate Anacortes’ 11th annual Bier on the Pier! Bier on the Pier takes place on October 7th and 8th and features local ciders, food trucks and live music - not to mention the beautiful views of the Guemes Channel and backdrop of downtown Anacortes.
Swedish Cyberknife Treatment...

The revolutionary treatment of Swedish CyberKnife provides better quality of life for majority of patients

There are a wide variety of treatments options available for men with prostate cancer. One of the most technologically advanced treatment options in the Pacific Northwest is Stereotactic Body Radiation Therapy using the CyberKnife platform at Swedish Medical Center.
Work at Zum Services...

Seattle Public Schools announces three-year contract with Zum

Seattle Public Schools just announced a three-year contract with a brand-new company to the Pacific Northwest to assist with their student transportation: Zum.
Swedish Cyberknife 900x506...

June is Men’s Health Month: Here’s Why It’s Important To Speak About Your Health

According to the Centers for Disease Control and Prevention, men in the United States, on average, die five years earlier than women.
Spain, Portugal eased energy prices. Can they teach the EU?