The gas price cap will be in effect for one year and it is expected that we will see effects on electricity bills from May onwards..
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Last Tuesday, the so-called "Iberian derogation" was approved by the European Commission with a price 20€ more expensive than the cap that Spain and Portugal requested to Brussels at the end of March. Despite this, it is still an important price cap that will result in significant reductions in consumers' electricity bills.
Thus, the agreement to limit the price of gas has consisted of establishing a maximum ceiling of 50 euros per megawatt hour on the price of gas used to generate electricity. The aim is to lower the selling price of combined cycle power plants, and consequently the marginal price in the wholesale market.
Currently the price of gas is around €90/kWh, a much higher price than it used to be before the summer of 2021 and which has increased even more since the beginning of the war in Ukraine, due to the reasons we explained in this post.
The increase in the price of gas in recent months has led to a general increase in electricity prices in the wholesale market, due to the marginal price system. The final hourly price of electricity is linked to the price of the most expensive fuel needed to meet the expected demand during that hour.
Therefore, limiting the price of gas will bring relief to the electricity market, which will lower the offers of combined cycle plants in the pool , thus reducing consumers' bills .
According to estimates, this limitation will result in prices in the electricity market above 150 €/MWh, 26% less than the average for this month of April, and this will allow lower prices in the retail market.
Price ceiling for the next 12 months
The reference price of gas will start during the first months at €40/MWh, but it is expected to go up with the intention of setting an average price of €50/MWh during the following 12 months in which the agreement will be in force, until May 2023.
The next steps for this measure to take effect will be the approval by the Council of Ministers, which is expected to take place on Tuesday, May 10. In addition, a document with all the technical details of the measure must be submitted to the European Commission by the Government and approved by them.
Therefore, it will be during the month of May at the earliest when we will finally be able to see some relief on our electricity bills.
