the Iberian model of electricity

For social protection, the systems set up in the Nordic countries are often cited as an example. For electricity, it is the Iberian experiment which is today the object of all the attention, after having shown its ability to curb soaring prices.

The principle is quite simple: as the price of electricity is determined in Europe by the cost of the last plant called to ensure the balance of the network, and it is most often a gas plant, it suffices to cap the price of gas used in thermal power stations and thus avoid a general surge in prices and the excessive margins achieved for the other producers, of renewables and nuclear, who benefit from the system. “It’s a virtuous model that lowers the cost of electricity for everyone”underlines the economist Jacques Percebois.

Its extension to all of Europe is currently under discussion within the European Union (EU), as requested by France. The Commission must make proposals in this direction and the subject is on the menu of a European Council which is being held in Prague this Friday, October 6th. “A month ago, apart from us, not many people believed in the generalization of this mechanismwe explain to the Ministry of Energy Transition. But today more and more States share our vision. »

A gas price cap

In May, Spain and Portugal received temporary authorization from the Commission to cap the price of gas intended to produce electricity: first at €40/MWh, then €5 more per month from July to reach €70/MWh in December. To be compared with the €185/MWh at which gas is traded on the wholesale market for delivery at the end of the year.

For operators, the impact is neutral. The difference between the capped price and the price of the gas they buy is compensated to them. The Spanish government wanted to take it directly in charge and initially envisaged that it be stronger. But the Commission demanded, in order not to distort competition at European level, that this compensation be passed on to consumers. It is estimated at ten billion euros for this year.

In the end, the bill has still been reduced by 15% to 20% for consumers since the spring. On the spot market (day to day), electricity is between two and three times cheaper than in France and Germany, depending on the time of day.

Spain and Portugal, an isolated peninsula

This transitional mechanism is not unanimous. Its detractors, especially Germany, point out that it works because Spain and Portugal are very poorly connected to the rest of Europe, given the weak interconnections crossing the Pyrenees.

But setting it up on a European scale could have perverse effects, especially for countries that have a lot of gas-fired power stations. “The Germans tell us: ‘We are going to pay more to get lower prices which will benefit neighboring countries, so we have to get financial compensation.’ That’s what we’re discussing.” explained the Minister of the Economy Bruno Le Maire, during a press briefing in Bercy, Wednesday, October 5.

The other criticism relates to the risk that the generalization of this mechanism induces both an overconsumption of gas, thus slowing down the objectives of reducing CO2 emissions. In fact, the Spanish gas power plants are running more than usual, without having any supply problems given the number of LNG terminals that have been built. This would not necessarily be the case in countries where the situation is more tense.

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