Brussels finally approves the Iberian exception

The Iberian Exception Mechanism Approved to Limit Gas Prices and Reduce Electricity Costs in the Iberian Peninsula

Implementation Date: The measure will be applied from Tuesday, June 14, and will be in effect until May 31, 2023.

Announcement: The European Commission has approved today the mechanism known as the "Iberian exception" to limit gas prices and reduce electricity costs in the Iberian Peninsula. This decision follows extensive work, given the complexity of the measure, and marks a milestone in the relations between Spain, Portugal, and the EU institutions.

Publication and Application: Tomorrow, the Official State Gazette (BOE) will publish an order from the Minister for the Ecological Transition and the Demographic Challenge, specifying the implementation date of the mechanism. It will take effect on Tuesday, June 14, affecting the wholesale electricity market auction that will be held that day to set the prices for the following day, Wednesday, June 15. This timeline provides electric companies and other market agents sufficient time to present the financial guarantees backing their operations.

Conditions of the Iberian Exception

Legislative Framework: The Commission has approved the Iberian mechanism as outlined in Royal Decree-Law 10/2022, which will be voted on for validation tomorrow in the Congress of Deputies. Over its 12-month duration, this measure will lower bills for families and businesses, protecting them from the volatility of gas prices in international markets.Rationale: The Iberian mechanism is an extraordinary measure justified by the low interconnection of the Iberian Peninsula with the rest of Europe, which poses a disadvantage for its integration into the European market. The agreement with the Commission to implement the mechanism includes active efforts to reverse this unfavorable situation.

Commission’s Appreciation

Statement by Margrethe Vestager: The Executive Vice-President responsible for competition policy stated, "The temporary measure approved today will allow Spain and Portugal to reduce electricity prices for the benefit of consumers who have been severely affected by rising electricity prices as a consequence of Russia's invasion of Ukraine. At the same time, the integrity of the single market will be preserved. Additionally, this measure allows Spain and Portugal some time to adopt reforms that increase the future resilience of their electrical system, in line with the Green Deal objectives, and ultimately further mitigate the effects of the energy crisis on end consumers.

"Evaluation of the Measure: The Commission assessed the measure under the EU state aid rules, particularly Article 107(3)(b) of the TFEU, which allows Member States to grant aid to specific companies or sectors to remedy a serious disturbance in the economy of a Member State.Compliance with EU Rules: The Commission concluded that the measure complies with EU state aid rules. Specifically, the Commission found that the measure:

• Market Circumstances: Differs from other forms of price intervention due to the particular circumstances of the Iberian wholesale electricity market. The limited interconnection capacity of the Iberian Peninsula, high consumer exposure to wholesale electricity prices, and the significant influence of gas on electricity price setting have caused especially severe disturbances in the Spanish and Portuguese economies.
• Adequate, Necessary, and Proportionate: The measure will reduce wholesale electricity prices for consumers without adversely affecting trading conditions contrary to the common interest. Moreover, the measure does not exceed what is necessary to address the exceptionally high electricity prices in the Iberian Peninsula.
• Temporary Nature: The measure is strictly temporary, only applying until May 31, 2023.
• Minimized Competition Distortion: The measure minimizes market distortion and avoids negative impacts on the functioning of spot and forward electricity markets. It does not result in cross-border trade restrictions or discrimination between Iberian and non-Iberian consumers, consistent with internal market rules.

Conclusion

On this basis, the Commission has approved the measure under EU state aid rules.

Source: Ramón Roca (El Periodico de la Energía)

Link: El Periodico de la Energía