The cost of electricity in Spain has gone up, despite the new price cap, because of high demand due to the heatwave

Today is the first day the EU's ‘Iberia exception’ for Spain and Portugal is being applied. However, consumers have received an unpleasant surprise: the final cost they will be paying for electricity has been affected by a perfect storm of factors which means the price is not as low as the government anticipated

José María Camarero

Madrid

Wednesday, 15 June 2022, 12:51

The European Union recently approved the ‘Iberia exception’ for Spain and Portugal, a cap on the gas price as a way of reducing the cost of electricity to consumers, and today, Wednesday 15 June, is the first day it is being applied. However, consumers have received an unpleasant surprise: the final cost they will be paying for electricity has been affected by a perfect storm of factors which means the price is not as low as the government anticipated.

Thanks to the price cap, the cost of electricity per megawatt hour today has gone down to 164 euros, which is indeed 23% lower than the 214 euros/MWh on Tuesday. So far, so good. But the problem is that all consumers - first, those on the regulated market - have to compensate companies that generate electricity with combined cycle gas for the difference in the price of raw materials, and that is higher than anyone predicted. Today it is 59 euros/MWh. The amount will change every day, depending on how the electricity market is operating, so sometimes the overall reduction in price will be greater than others.

The Ministry of Ecological Transition admits that the combination of circumstances has meant the benefits of the price cap are not visible yet. It says that without the discount, electricity would be costing about 240 euros/MWh. In other words, it estimates that all it has managed to do with the ‘Iberia exception’ is reduce the cost per megawatt hour by about 16 euros.

The perfect storm has also been caused by the heatwave, with temperatures of over 40C in many places in Spain at present. This has increased demand for electricity because of the use of air conditioning and electric fans, which is bound to push the price upwards.

The Iberia exception can be applied for a period of 12 months, so it will also cover the winter. It remains to be seen how effective it is at different times of the year.

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