Spain will be a month old this Wednesday without an Iberian exception. The sharp drop in the price of natural gas, which today is worth half that of just three months ago, has left the innovative mechanism with which Spain and Portugal managed to separate their price from electricity from the rest of their European neighbors in the second half of 2022 and whose extension has just been approved by the European Commission.
The so-called gas cap comes into force when the price of this fuel exceeds a certain threshold in the Iberian market (Mibgas). When Brussels gave its approval to the tool, in June, the exception was when gas was priced at more than 40 euros per megawatt hour (MWh). At that time, the price of this fuel was around 100 euros; two months later, in August, it reached a peninsular historical maximum of more than 200. So its activation was a true fact, day after day, for months. Until last October 20, when the reference price —which Mibgas sends every afternoon— fell below that barrier and was, for the first time, suspended.
Since then, the mechanism has alternated periods in force —the most— with others of inactivity —the least. It has been the last descent, more pronounced, the one that has left it on hold until further notice: since February 28, this spring has not jumped a single day. “This is good news: the consumer is benefiting from this situation,” says Juan Antonio Martínez, an analyst at the ASE group. “The gas markets have adjusted, time has been with us and demand has fallen,” endorses Natalia Collado, an expert in regulated markets at EsadeEcPol. “That it has ceased to be in force means that the price of gas is falling and that there are more hours in which renewables set the price. So yeah, it’s a positive thing.”
Paradoxically, this temporary deactivation of the gas cap has occurred in the midst of negotiations between Madrid and Lisbon —on one side of the table— and Brussels —on the other— for its extension beyond May 31, when it expired. There is also room for a second paradox: the mechanism has gone to the reserve just when the compensation associated with it was going out to return to the homes. In February, the distribution of the so-called congestion rents (the benefits derived from exports to other countries, with France in the lead) caused the adjustment to make the receipt cheaper instead of making it more expensive, as had been the norm in previous months, in which —specifically— the compensation came to be higher than the cost of the energy itself.
That, however, does not mean that it is better for families and companies to be active. “It is true that there is a point at which exports benefit consumers, but it would also mean that the wholesale market price would be higher and, therefore, we would also be paying more,” explains Martínez. “That it is inactive means that gas is cheaper and, therefore, that we pay less for electricity.”
Higher thresholds in the second half of the year
Even inactive, as now, the Iberian exception remains as “insurance against any risk of a rise in the price of gas over the price of electricity”, in the words of Luis Atienza, former president of Red Eléctrica de España (REE). “It is, above all, a mechanism to stop this direct transmission.” Hence, despite being inactive, its extension until December – to which Brussels has given its approval – makes “all the sense”.
The agreement for the extension of the Iberian exception until the end of the year, however, implies an upward revision in the activation thresholds of the mechanism. The current 55 euros per MWh —it began to rise at a rate of 5 euros per month after the first six months— will grow, in the form of a “linear path” up to 65 euros in December. “If the current price context is maintained, it is true that the effectiveness of the Iberian mechanism is relegated to a secondary level since, as natural gas prices are below the threshold set by the regulatory instrument, the effects of the Iberian mechanism on the Marginal matching processes in wholesale markets are null, ”admits the Government in the decree extending the mechanism.
“It is sensible and prudent for it to continue until the end of the year, because we don’t know what next winter will be like,” says Collado. “This year we have been lucky to be able to supply ourselves without much problem because Asian demand has dropped, but it will depend on how supply and demand align. We may still see new price spikes in the coming months.”
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