The Iberian mechanism, also known as the Iberian exception, will continue in force beyond May 31 after the Government has obtained authorization from the European Union for its extension until the end of 2023, at which time all the legislation that was passed exceptionally to combat the effects of the war in Ukraine.
As confirmed on Tuesday by the Minister for Ecological Transition, Teresa Ribera, on her arrival in Brussels to attend the summit of Energy Ministers, the Council of Ministers will approve the royal decree-law that includes the modifications that the European Union has demanded. to accept this extension, and that they only imply a change in the ceilings at which the price of gas will be paid. The rest of the measure will continue to work as it did so far
The objective of the mechanism since its entry into operation on June 15 has been to cap the price of the gas used for power generation in the wholesale price formation market to avoid transferring the full impact of the rise in gas prices on consumer receipts.
According to the Government, “since it entered into force on June 15, 2022, it has provided savings of more than 5,000 million euros to all consumers.”
Currently, the maximum price at which the combined cycles that generate electricity with gas can bid on the daily market is set by the mechanism at 45 euros per MWh. This means that the rest of the energies (nuclear, hydraulic, photovoltaic, wind…) cannot charge above that price. The difference between those 45 euros and the real cost of gas in the daily market (according to the TTF of the Dutch market, which serves as a reference) is paid jointly by all consumers. It is what is called compensation. In other words, if the gas price is 100 euros, the difference of 55 euros must be paid to the generators, it would have to be paid jointly by all consumers. That is why a surcharge appears with this concept on the invoice.
Until today, the deadline for the application of the Iberian mechanism was May 31, 2023. Since its entry into force, on June 15, an ascending ceiling had been established for the price of gas that began at 40 euros and went up increasing to 70 euros MWh in May.
With the extension approved this Tuesday, what is done is to stop the rise in that ceiling. From the current 55 euros per megawatt hour, it will grow by 1.1 euros MWh monthly from April to end at 65 euros MWh in December.
What Brussels has authorized is an extension of the measure until the deadline on which the exceptional measures approved to deal with the impact of the war in Ukraine are in force. According to the Government, what was agreed with Brussels is that if, when that period ends, the environment of tension in the energy markets continues, another extension may be considered.
The mechanism acts as an insurance against possible market volatility. If the price of gas does not rise above 55 euros, the mechanism does not activate. As has been the case in recent weeks, if it exceeds that price or the one set in the months remaining until the end of the year, it will be activated immediately.
