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ENERGY

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

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.

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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)

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.

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ENERGY

Spain’s PM hopes European gas link will become a reality ‘soon’

Spanish Prime Minister Pedro Sánchez said Tuesday he hopes a gas pipeline linking the Iberian Peninsula to central Europe through France could soon become a reality.

Spain's PM hopes European gas link will become a reality 'soon'

Europe is currently undergoing an energy crisis as it struggles to rapidly reduce its dependence on Russian gas following the invasion of Ukraine.

Russia has reduced deliveries and nations are scrambling for supplies to avoid a possible shortage this winter, while prices for gas and electricity have soared.

“Spain has a lot to contribute to help Europe reduce its energy dependence on Russia thanks to our immense regasification capacity,” Sánchez said on a visit to La Palma in the Canary Islands.

Spain currently has six liquefied natural gas (LNG) terminals for processing deliveries made by huge sea tankers back into gas and injecting them into its pipeline network.

But the country has only two low-capacity links to France’s gas network, limiting its current ability to act as a conduit to boost EU gas imports.

Last week, German Chancellor Olaf Scholz said a pipeline bringing gas from the Iberian Peninsula through France to central Europe could make “a massive contribution” to easing the supply crisis, in remarks hailed by Madrid and Lisbon.

Madrid has for years championed the idea of a pipeline across the Catalan Pyrenees with France to significantly increase transfer capacity and insisted such link could be built within months.

“This is something the Spanish government has been demanding from Europe for a long time now… and we hope we can soon make this dream into a reality,” Sánchez said.

Spain is already showing solidarity with its European partners by exporting energy “and we will do so even more when we improve the energy interconnections”, he added.

The pipeline would be similar to the defunct MidCat project, which sought to link Spain to France, but which was halted in 2019 over opposition from environmental groups and a lack of funding.

Spain’s gas network operator Enagas said last week it could have the Spanish section of the pipeline ready within “eight or nine months”.

Sources familiar with the project said it would initially transport natural gas, but would ultimately switch to hydrogen.

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