The decision to put a cap on gas prices by using fossil fuels in the production of electricity in Portugal and Spain is finally in action. Since 15th June 2022, this unusual decision has impacted electricity costs in Portugal and Spain.
A bizarre amount of changes are being noticed in the market. On the first day of this process, the price of electricity was seen to be 23% cheaper. The price of the average megawatt-hour dipped from 214 Euros to 165 Euros compared to the previous day’s price.
Although the price of electricity is significantly decreasing, it still is higher than what it was the last year.
The Advantages Outweigh The Disadvantages
According to the Iberian deal, Portugal and Spain are allowed to cap the prices of gas for a duration of one year. For the initial six months, the power plants of the countries won’t be paying more than EUR 40 per MWh, and gradually, the prices will increase to EUR 50 per MWh.
This shall result in a 22% reduction in the electricity prices. The cap is also estimated to bring down 0.8 % to 0.9 % of the inflation. The EU says that the price of the cap is 8.4 billion euros, of which Spain accounts for 6.3 billion euros.
This comes from the electricity trading between France and Spain. The other part originates from the fact that Portugal and Spain can depend on the buyers who subsidize the electricity from Spain with the cap benefit.
Mirage Of Revolution
At this moment, this measure might seem like a revolution, but it is not, it’s a mirage of revolution. End of the day, this energy turnaround is exploiting Spain’s and Europe’s renewable energies. The rest of Europe will closely watch the effects of the cap and will determine the future of this measure.