A reform of the PVPC will be addressed so that it can be applied at the beginning of 2023

MADRID, 14 May. (EUROPA PRESS) -

The Official State Gazette (BOE) publishes this Saturday the Royal Decree-Law establishing the mechanism to limit the price of gas for electricity generation to an average of 48.8 euros per megawatt/hour (MWh) for a twelve-month period, thus covering the coming winter, a period in which energy prices are more expensive.

After its approval in the Council of Ministers on Friday, the Third Vice President of the Government and Minister for the Ecological Transition, Teresa Ribera, pointed out that once the measure comes into force this Saturday and at the expense of the European Commission formally adopting support for the standard , which could be delayed up to "about two weeks" - will mean an immediate improvement for 37% of domestic consumers and 70% for industrial consumers.

In this regard, sources from the Ministry for the Ecological Transition specified that the mechanism, despite its publication as a Royal Decree-Law, will thus remain pending a formal decision from Brussels and to be initialed by an order from the minister for its application.

The third vice president estimated that thanks to this measure the price of the 'pool' will fall by around 38% in its average price, from 210 euros per megawatt hour (MWh) marked throughout the first quarter of this year to about 130 euros/MWh. In this way, the only electricity that consumers will pay at the cost of gas will be that produced with gas plants.

The measure will thus help to contain the escalation of prices and inflation and, above all, will act as a firewall against the volatility of gas prices derived from the war in Ukraine, it will also facilitate the reform of the regulated tariff -the so-called PVPC-, incorporating futures market price references.

Ribera assured that, once the measure is in force, consumers in the regulated market will notice this relief in the price of electricity "immediately", while for the rest of consumers in the free market it will be something "progressive", seeing benefited when they renew or change, "since their annual revision will have the reference with lower prices".

The head of Ecological Transition and the Demographic Challenge also warned that electricity companies must provide "detailed" information on their 'retail' contracts, "not those that they sign with their marketer, but the real contracts that consumers pay", to control that this volume of "benefits is no longer paid by consumers".

"Which does not mean that they will go into losses, they will continue to obtain profits," he stressed, lamenting that the electricity companies have not had "behavior more in line with the current situation" by making offers on the free market "more adjusted to the needs of households or industrialists".

From the entry into force of the Royal Decree-Law, which does not apply the mechanism, the marketers will have a period of five days to offer a "still photo" of what their market demand is exposed to the 'spot' market and what part has coverage or fixed contracts.

Subsequently, there will be another period of seven days for the market and system operator to put into practice the procedures and systems for the application of the mechanism.

In addition, a sanctioning regime will be established to avoid actions contrary to the correct behavior of each and every one of the market agents, with "very serious infractions" in the event that they do not comply, sources from the Ministry indicated.

On the other hand, the mechanism will increase the export balance with France, due, in large part, to the lower price of electricity in Spain, although the same sources indicated that the objective is to take advantage of the additional congestion income that will be created in border due to this greater French demand to reduce the impact of the compensation of the gas cap.

The so-called 'Iberian exception' had been pending approval since at the end of April the governments of Spain and Portugal reached a political agreement with Brussels to establish this temporary mechanism to set this cap on gas at around an average of 50 euros/MWh.

This measure will allow the temporary decoupling of gas and electricity prices in the Iberian Peninsula, which will thus benefit from an exception, as agreed at the March European Council.

The mechanism will last about 12 months and establishes a gas reference price of 40 euros/MWh for six months, which increases by 5 euros/MWh per month thereafter, ending at 70 euros/MWh so that there is a convergence to normality, compared to the current reference price in the market of more than 100 euros/MWh -as in the case of the Dutch TTF, a reference in Europe-.

In the current configuration of the electricity market, gas determines the global price of electricity when it is used, since all producers receive the same price for the same product, electricity, when it enters the network.

On the other hand, the Royal Decree-Law also includes the mandate to modify the PVPC calculation methodology to incorporate references based on a basket of forward products and the daily and intraday market.

This will combine stability with incentives for energy efficiency, storage and demand management. The new PVPC is expected to begin to be applied from the beginning of 2023, reported the cabinet led by Teresa Ribera.

The approved mechanisms are added to the national and international actions that the Government has launched since the summer, at the beginning of the rise in energy prices driven by the speculative increase in gas prices.

Thus, at the national level, a tax reduction has been approved on electricity with an accumulated cost of more than 7,000 million euros, and a 55% reduction in electricity charges, in part thanks to an extraordinary review of what the renewables, among many other measures.

Among these measures, the reduction of gas, approved in September to reverse part of the extraordinary profits obtained by the companies, stands out. It was reinforced in March so that it is also applied to fixed-price term contracted energy with a hedging price greater than 67 euros/MWh; In the case of hedges between companies of the same business group, the final market price will be taken into account.

At a press conference after the Council of Ministers, the Third Vice President of the Government and Minister for the Ecological Transition, Teresa Ribera, highlighted that this measure, which represents a response "that has little or no precedent" in the past, since Europe has understood "the reasons why Spain and Portugal should have this exception", it will be "an umbrella" to protect domestic consumers and large industry in the current context of tension in energy prices, aggravated especially by Russia's invasion of Ukraine.

Likewise, he stressed that "for the first time they will not pay the same" and the purpose of the measure is "to reduce the extraordinary benefits of electricity companies so that there are benefits for all", in the case of a complementary measure to the reduction of gas.

Gas thermal power plants, combined cycles, will continue to charge what is necessary to guarantee the electricity supply. This cost will only be passed on to the consumers benefiting from the measure at any given time and will always be less than the final savings provided by it.