Madrid proposes reform of the European electricity market

Spain’s Minister for Ecological Transition, Teresa Ribera

The Spanish cabinet approved its own draft for the reform of the European electricity market on Tuesday, which is now being sent to Brussels.

(Photo: imago images/Agencia EFE)

Madrid The Spanish cabinet approved its proposal for the reform of the European electricity market on Tuesday. This makes Spain the first EU member to submit its ideas to Brussels. In essence, the most expensive type of energy should no longer determine the price of electricity.

The EU Commission is planning a new design for the European electricity market in order to ensure more stable prices. Commission President Ursula von der Leyen has announced that she will present a proposal in March.

“The current design of the European electricity market was developed around 30 years ago,” said Teresa Ribera, Spain’s Minister for Green Transition. It is neither designed for the increasing share of renewables nor for the increasing volatility on the energy markets. She did not comment on the technical details of the Spanish proposal. It is clear that it is based on the principle of decoupling the gas price from the electricity price.

The Spanish proposal has two pillars: The first is that in future the spot market should no longer determine the electricity price, as it does today, but futures contracts with a long term. “The spot market will continue to exist, but the same price will no longer apply to all forms of energy,” says Ramón Mateo, energy expert and director of the Bebartlet consultancy.

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In the Spanish model, the price for renewable energy is to be based on long-term contracts based on the principle of supply and demand in auctions. Today, on the other hand, the most expensive form of energy determines the price of all the others – in the past few months it has always been gas.

>> Read here: Spain, Portugal and France plan “EU’s first hydrogen corridor”

For nuclear and hydropower, the Spanish government wants to set a regulated price, along with an availability premium. This is justified by the fact that these are technologies whose capacity cannot be increased in the short term for technical, social and ecological reasons.

Madrid wants to keep fossil fuels in reserve

The second pillar of the Spanish proposal is based on the creation of a capacity market for the forms of energy that can always produce energy, even when there is little wind or a severe drought and renewables and hydropower are absent.

This applies above all to fossil energies such as gas and coal, but also to energy storage. The price for this should continue to be formed on the spot market in the future, just as it is today.

“But as pure ‘replacement technologies’, they no longer determine the price of all other forms of energy,” says expert Mateo. “It also eliminates the excess profits for renewable, nuclear and hydro power, and the price for consumers falls in the long term.”

Spain is currently going its own way with Portugal on the electricity market: the so-called Iberian gas price cap has been in effect in both countries since last June, which sets an upper limit for gas used to generate electricity.

The EU’s permission for this is only valid until May 31 of this year. Madrid wants to leave the gas price cap in place for longer. “We must be able to continue to rely on the effective measures that we have temporarily applied in Spain,” Minister Ribera said. “This measure helped us to save 450 million euros, around 150 euros per family in the regulated tariff.”

Since mid-June last year, Spain and Portugal have capped the price of gas for power generation to an average of 50 euros per megawatt hour – which is well below the market price. The Iberian gas price cap started at 40 euros per megawatt hour and is expected to rise to 70 euros per megawatt hour by next May.

In Spain, 40 percent of households and 70 percent of companies are subject to the regulated electricity price, which is subject to the price cap. This price is dependent on the spot market, which is why Spanish consumers and businesses felt the rise in energy prices earlier than others.

More: Gas price cap lowers inflation in Spain – but also has negative effects

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