The operators of the electricity markets of Spain and Portugal warn of the “important and relevant impacts” that the so-called Iberian exception, the plan presented by the governments of Madrid and Lisbon to limit the price of gas and coal that is burned to generate electricity to 30 euros per megawatt hour (MWh). The rise in the price of the former is primarily responsible for the sharp rise in electricity prices in recent months.
In a letter sent to the Secretary of State for Energy of Spain and Portugal, as well as to the stock market supervisors of each country (CNMV and CMVM) and to the MIBEL technical committee (CNMC, ERSE, CNMV, CMVM), OMI —in the In which the country’s main energy groups participate (such as Endesa, Iberdrola, Naturgy, Repsol or EDP) and financial groups (Santander or BBVA), the operators OMPI, BMEClearing and MEFF warn that “the potential intervention of the market not aligned with the rest of the EU will originate a strong regulatory risk, compromising the necessary credibility of the price formation process”. The operator of the Iberian wholesale electricity market, OMIE, on the other hand, is not among the signatories of the text.
“The absence of a clear, unequivocal and unquestionable regulatory regime for price determination and with a limited application period, would cause great insecurity and legal risk, especially with regard to all derivative contracts already traded,” they add. And it is that the companies generally cover the volatility of electricity prices through hedging contracts in the futures markets, whose prices are established according to the prices in the daily auctions and in the spot markets. In this way, they say, a distortion in those prices through the fixing of a cap would lead to distorting those derivative contracts as well.
According to market estimates, some 160 terawatt hours (TWh) are exposed to financial positions in the Iberian market, just over 60% of estimated electricity consumption in a year in Spain, which amounts to some 260 TWh per year. Thus, the signatories of the letter defend that, if this limit on the price of gas is chosen, it be a measure adopted jointly by all the members of the European Union, and not only one that affects Spain and Portugal, or that the regulation that sees the light sets, “for legal and economic-financial security”, the OMIE reference price that will serve as the underlying for all electricity derivative contracts in the Iberian market.
However, they recognize the convenience of governments “searching for solutions” in a situation like the current one, marked by the need to accelerate the energy transition in a context of geopolitical tensions, especially after the outbreak of the war in Ukraine, and volatility of prices, which have led to an unstoppable rise in the price of gas throughout the world, but particularly in Europe. This, they underline, has also had an impact on the electricity market, with an “unprecedented escalation in prices in the last year, generating serious economic difficulties in the Iberian business fabric, in the capacity and propensity of households to consume energy and a strong social unrest”.
Spain and Portugal have proposed to Brussels a cap of 30 euros per MWh on the price of gas and coal used to generate electricity as a formula to lower the price of electricity bills. However, this proposal, which has been strongly rejected by the electricity sector, must receive the approval of the European Commission. The Third Vice President and Minister of Ecological Transition, Teresa Ribera, trusts that at the beginning of May Brussels will give the go-ahead to the measure for its entry into force.
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