Spain and Portugal's cost-cutting 'energy island' plan gets EU approval

AFP/The Local
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Spain and Portugal's cost-cutting 'energy island' plan gets EU approval
Portuguese Prime Minister António Costa (L) and his Spanish counterpart Pedro Sánchez during a press conference in 2020. (Photo by PATRICIA DE MELO MOREIRA / AFP)

Spain and Portugal reached an agreement with the European Commission Tuesday to slash electricity prices on the Iberian Peninsula, under an exemption allowing them to separate it from the price of gas.


According to Madrid, around 40 percent of households should benefit from the system, and between 70 and 80 per cent of companies will be affected.

"We have reached a political agreement with the Commission", said the Spanish Minister for Ecological Transition Teresa Ribera, at a press conference in Brussels with her Portuguese counterpart Jose Duarte Cordeiro.

The deal, which should come into force in the next few days, will help "strengthen the protection of Spanish and Portuguese consumers... who have a higher level of exposure to the evolution of the wholesale market," she said.


At the end of March, the European Union authorised Spain and Portugal to take "exceptional measures" to reduce the price of gas used to produce electricity and to alleviate household energy bills, which are particularly high in the two countries.

The cost of energy has risen sharply in recent months in Spain and Portugal because of European electricity market rules, which force producers to sell their energy at the price of the most expensive technology -- currently gas-fired power stations.

For months, Madrid and Lisbon have been fighting against this system, which was deemed unsuited to the energy situation on the Iberian Peninsula.

But several European countries were opposed to a reform, saying they feared the impact on competition within the EU.

The Iberian exception was approved in view of the two countries' "particular situation", as they have "energy mixes composed mainly of renewable energies and very few interconnections with the European market", Commission President Ursula von der Leyen said.


What is an energy island?

Spain and Portugal are in a strategically advantageous position in that they’re not as dependent on Russian natural gas as many of their European neighbours, importing most of it from Algeria and other countries.

Spain is also the country with the largest gas storage and regasification capacity in Europe and together with Portugal is a renewable energy leader in terms of solar, hydraulic and wind power. Their energy markets are more self-sufficient and extremely well connected between both nations.

This has led the two countries that form the Iberian peninsula (as well as tiny Andorra) to be referred to as an “energy island” by Spanish Prime Minister Pedro Sánchez and his Portuguese counterpart António Costa, as a simplified way of describing why their countries should (and now have been) temporarily released from the EU’s common market rules.


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