'Energy island': Gas price cap comes into effect in Spain and Portugal

AFP/The Local
AFP/The Local - [email protected]
'Energy island': Gas price cap comes into effect in Spain and Portugal
Portuguese Prime Minister António Costa (L) and his Spanish counterpart Pedro Sánchez have for months been arguing that European electricity market rules shouldn't apply to the Iberian Peninsula. (Photo by CARLOS COSTA / AFP)

An EU-backed cap on the price of natural gas used by power plants in Spain and Portugal came into effect Tuesday to ease the spiralling electricity prices in the two nations.


Russia's invasion of Ukraine has caused gas prices to rise, pushing up already soaring power bills in the two countries which have little electricity interconnection with the rest of Europe.

Last week the European Commission agreed to initially cap gas used for power generation at €40 per megawatt-hour, with the price limit projected to average out at €50 over the coming 12 months.

The Spanish government predicts the measure -- which will be in effect until May 31st 2023 -- will lead to a reduction in household energy prices of up to 20 percent.


Spain's Energy Minister Teresa Ribera said the cap will "protect" Spanish and Portuguese household in a "turbulent and complicated" energy market due to the war in Ukraine.

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 which have large amounts of renewable power.

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

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.


Join the conversation in our comments section below. Share your own views and experience and if you have a question or suggestion for our journalists then email us at [email protected].
Please keep comments civil, constructive and on topic – and make sure to read our terms of use before getting involved.

Please log in to leave a comment.

See Also