The agreement reached this Friday by the Heads of State and Government of the European Union, which allows Spain and Portugal reduce the price of gas and electricity Based on its uniqueness, it represents an important step forward to shake off the energy pressure that our country has suffered in the last year, aggravated by the invasion of Ukraine and Europe’s dependence on Russian fuel.
Madrid and Lisbon will thus be able to ‘break’ the uniformity of the single market -based on its low level of energy connection with the rest of the EU- and limit gas prices in the wholesale market, so that this affects electricity bills.
The Government trusts that “in three or four weeks” can lower energy pricesAs the Minister for the Ecological Transition and Demographic Challenge pointed out this Saturday in an interview on Canal 24 Horas de TVE, Theresa Rivera.
However, the energy agreement adopted in the European Council based on the so-called “Iberian exception” demands that the Executive prepare a plan as quickly as possible that includes a package of measures that it will foreseeably approve on Tuesday in the Council of Ministers and that later it must transfer to Brussels for approval.
What’s the deal?
In the text approved by the Twenty-seven, Spain or Portugal are not explicitly named at any time, although the president of the European Commission, Ursula von der Leyenstated at a press conference that the agreement reached provides for “a special treatment for the Iberian Peninsula so that they can manage this very specific situation in which they find themselves and manage energy prices”.
The document states that the European Commission is “ready” to urgently evaluate the compatibility of the “temporary emergency measures in the electricity market notified by the Member States”, including those “aimed at mitigating the impact of fossil fuel prices on electricity production“.
To do so, the Commission will ensure that a number of conditions are met: the transitory measures; that these do not affect the conditions of commercial exchanges; that they do not harm the general interest; and the low level of interconnectivity with the community electricity market, which ultimately is one of the essential elements of the agreement.
“This is the key for Spain, to take into account its level of interconnectivity. It is not, therefore, a blank check for Spain and Portugal to adopt any type of measure”, he assures in statements to RTVE.es Jorge Sanzformer president of the Commission of Experts for the Energy Transition.
What does it translate to?
The Government is going to propose to Brussels a series of actions that allow lowering the price of electricity and will have to wait for its approval. Minister Ribera has advanced on TVE that Spain will defend that decouple the price of gas from electricity.
“You have to pay for gas in any case, but we want that gas price is not the price at which the rest of the electricity is paid that is produced, which has a cheaper price. What we will do is separate the gas from the price formation mechanism,” said the Minister of Ecological Transition. Sources from Moncloa have told EFE that the Executive is finalizing a plan that they describe as “ambitious”.
Jorge Sanz points to other measures that could appear in the royal decree law that the Council of Ministers must approve on Tuesday as a preliminary step to the proposal to Brussels: “I suppose that the tax deductions that we already had on the table will be extendedthere will be aid to industries that are large consumers of electricity or gas and lower tolls or State aid, because the European Commission has already said that it will accept it,” says the expert.
Why Spain and Portugal?
The basis of the agreement is in the article 122 of the EU Treatywhich specifies that “those regions that meet certain criteria may temporarily cap fossil fuel prices used for electricity without affecting the functioning of the single market”.
Based on this article, Spain and Portugal have appealed to their low level of electrical interconnection with the rest of Europe, which President Sánchez put at 2.8%, and its high share of electricity from renewables, which in the case of Spain is 47%. Hence, the EU has considered the Peninsula as an “energy island”.
But the former president of the Commission of Experts for the Energy Transition Jorge Sanz warns that that figure of 2.8% interconnection is not exact because “integration with Europe has to be measured by the number of hours of the year in which the price in France and Spain are identical in the wholesale market, and this percentage is 50%which is not small and that will be taken into account by the European Commission,” he warns.
Victor Fermosel, expert professor in Energy at EAE Business Scholl, explains that Spain does not depend “so much on the market price that can be established for the rest of the countries, since we also receive gas from other sources”. Speaking to the newscast, Fermosel points out that “It harms us that the price of gas is fixed in a common way for all the Member States“.
In recent months, Spain has received lto most of the liquefied gas coming from the United States (39.2% in February, according to Enagás data), ahead of Algeria (23.2%) and Nigeria (23.2%), while Russia is the fourth supplier with 5.7%.
“The European Union has recognized that Spain and Portugal are an energy singularity; this is a reality that was already known”, he assures RTVE Anthony Rubioprofessor of Political Science at UNIR, who points out that in this situation “France has a lot to do with it, as it is an important country and has its own energy policy with the issue of nuclear: they have always bet on it and have been very jealous of their electrical independence”.
Will the pocket really notice?
From the Government they do not hesitate to affirm that the measures “will allow” the consumer to notice the effects on his bill electricity, according to Minister Teresa Ribera.
At this point, experts prefer to be cautious and wait to read the ‘fine print’ of the measures that the Government approves next Tuesday to pronounce itself, although in general they trust that this will happen in the short and medium term.
Veronica Bermudeza researcher at the Qatar Institute of Energy and the Environment, told the Telediario that the agreement reached in Brussels is “a first victory, from the point of view that it has been achieved, albeit temporarily. If things are done well, I personally I think the consumer will get a reduction in their final bill“.
Jorge Sanz argues that “if we accept the Commission’s criterion that levels can be reduced until we reach the positions prior to the invasion of Ukraine, then there would be a margin, although not a tremendous margin, but it would benefit the bills of electricity and gas consumers”.
“It would be very good for our economy, for our companies, because the exorbitant price does not favor economic recovery at all,” adds UNIR Professor of Political Science Antonio Rubio.
How will the energy price reduction be compensated?
The president of the Government, Pedro Sánchez, did not want to specify how this measure will be compensated, although he stated after the end of the European Council that it will not be through public aid to gas companies. The head of the Executive will preside over an economic act in Madrid on Monday and it is possible that in the course of it he will reveal some of the aspects of the proposal to Brussels.
John Ignatius Crespoa state statistician and financial analyst, fears that “by capping electricity prices the injured parties will be the shareholders of the electricity companies or they are going to be the citizens” because in the end they end up “paying for it in another way”.
Where does Europe’s energy future lie?
It is clear that the conflict in Ukraine has been a tremendous setback for Europe’s energy supply and has brought back to the table the old debate about the need to look for alternatives to fossil fuels.
“This is a lesson for all of Europe, which has been fighting for a decade to replace coal with gas, but that has made us more vulnerable,” says Jorge Sanz. The expert considers that the EU has lacked “strategic vision to realize that there are not many gas supplying countries and, furthermore, They are politically unstable..
The European Commission is preparing an ambitious plan to phase out imports of Russian oil, gas and coal and there are several possibilities.
One of them, the ‘fracking’ -drilling at great depths to extract gas-, is a technology rejected in the EU but that the United States is using to obtain this fuel at very cheap prices, which is making it possible for a country that was previously an importer of gas to now be exporting it.
“I do not rule out that some countries, including Spain, the nuclear debate is reopened; not to build new plants, but to extend the useful life of the ones we have,” says Sanz.
Antonio Rubio concludes that ending with “Russia’s energy dependency will not be done all at once and it’s certainly not easy, but it’s expected to reach significant levels by 2030,”