GAS PRICE ADJUSTMENT MECHANISM IN THE IBERIAN PENINSULA: THE EUROPEAN ELECTRICITY MARKET PUT TO THE TEST

Since last summer, Spain and Portugal have been facing accelerating energy price inflation, which governments are trying to contain by adjustments to VAT, the profits of electricity producers or of social benefits for the most vulnerable households. These measures, however, are proving insufficient to protect households and industry from soaring gas and electricity prices. Spain and Portugal have therefore applied to the European Commission for a mechanism to adjust electricity production costs: by capping the price of gas used to produce electricity, the governments hope to reduce electricity bills. Although exceptional and temporary, this Iberian mechanism constitutes a new stage in the history of the European electricity market. Unified since the end of the 1990s, the price of electricity results from a match between supply and demand on the European wholesale market. Sometimes referred to as an energy island, the Iberian Peninsula’s specific characteristics help ensure that when interfering with the price mechanism, the single electricity market is not affected at the European level. As Spain and Portugal have a low level of gas-fired electricity production and are interconnected in a limited way with the rest of the European market, the European Commission has therefore accepted their proposal.