On 14 May 2022, the Spanish government published an executive order which implements the “Iberian exception”, as agreed in principle with the European Commission, and which aims to limit the impact of the price of natural gas on power prices.

With a duration of 12 months or until 31 May 2023 at the latest, this measure is expected to benefit all consumers, especially households covered by the regulated tariff (Small Consumer Voluntary Price or “PVPC”) and industry with tariffs indexed to pool prices.

The cost of this measure will be the sum of payments awarded to Eligible Projects. If we use the generation of all CCGT and coal plants in 2021Q3 as a reference point (11,748GWh), the quarterly cost would be around €959 million (=11,748*81.6).

This cost will be «distributed among that part of the Iberian demand that will benefit directly from it, either because it acquires energy at a price directly referenced to the wholesale market price or because it has signed or renewed contracts taking into account the beneficial effect of this measure on wholesale prices” (based on RDL 10/2022, page 67941). At the end of October 2021, only 41% of the demand was subject to supply contracts indexed to the market price, including all PVPC and 48% of industry (see table 38 in https://www.cnmc.es/sites/default/files/3981989.pdf). If we use the demand for 2021Q3 as a reference (61,903GWh) and 45% of them pay the surcharge, it would cost them 34.4€/MWh(e) (=959/(61.90*45%), which compares to 15.5€/MWh(e) if all demand paid for the surcharge. Thus, all those covered by the PVPC or contracts indexed to the pool price would experience a reduction in bills of 55.4€/MWh(e) in 2022Q3 (=89.8-34.4).

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