The socialist leaders of Spain and Portugal, Pedro Sánchez and António Costa, managed to agree in May, after an arduous negotiation with Europe, a cap on gas of 40 euros/MWH that would apply for one year, in response to the Emergency situation generated by the war in Ukraine. Both governments have been satisfied with the effects of this mechanism, which have discounted hundreds of millions of euros in national electricity bills. However, these have not been the same in the two countries of the Iberian Peninsula. The average price of electricity in the wholesale market has increased by 50% in Portugal during 2022, while for Spain, the cost has risen by 87.3% in the same period.
The start of the Russian invasion of Ukraine unleashed an unbridled escalation in electricity market prices, due to the high dependence of European countries on Putin’s gas and the establishment of sanctions against him, at the national and community level. This led to putting on the table a reform of this market, with the aim of decoupling electricity from gas, although eleven months later it is still under discussion within the highest European authorities. For this reason, the decision was made to act more quickly and establish a cap on gas of between 40 and 70 euros/MWH for the two Iberian countries, which has risen to 180 euros/MWH for the rest of the community countries.
By June, when the ‘Iberian exception’ came into effect, the price paid by Spanish households for electricity had skyrocketed. The average price without taxes increased by 89.91% in just twelve months. While in the same period it increased by 49.25% in Portugal, rising from 0.1131 euros/KWH to 0.1688 euros/KWH. At the end of the year, after seven months of application of this mechanism, the difference in percentage points when comparing the average prices of the wholesale market remained practically intact.
According to data from the Association of Large Energy Consumption Companies (AEGE), in 2021 the average price of MWH was 111.93 euros for Spain, compared to 209.69 euros/MWH in 2022, which leaves an increase of 87% On the other hand, in Portugal it went from 112 euros/MWH to 169 euros/MWH, rising by 50%. Both countries have experienced the effect of the drought on their electricity bills in the last twelve months, since their hydraulic and renewable production capacity has been substantially reduced, at an inappropriate time to compensate for deficiencies with liquefied gas, although this practical solution is inevitable .
Portugal has closed the balance of trade in electrical products in negative for eleven consecutive months, with the exception of December, when it gained more energy from Spain than it bought and this turnaround is also explained by the rebound in hydroelectric production at the end of the year. Apart from this anomaly, the Portuguese country increased the volume of purchases on the other side of the border, which, according to Enagás in its annual report, has been one of the factors that has led the Spanish electricity sector to consume more natural gas to supply combined cycle plants.
This operation has been especially profitable for the economy of the Coast, given that the compensation to the electricity companies for the production of this energy with the gas cap in force is assumed by Spain, since Portugal pays only for the final product. In total, the Portuguese country has compensated for the deficiencies in renewable production -which has only covered 49.3% of national electricity consumption compared to 59.5% a year earlier- with imports, which have reached 18.1% consumption in the last year.
Portugal has allocated 45.5% of natural gas to the production of electricity in combined cycle plants and the rest to the conventional market. During 2022 it has managed to reduce dependence on Russian gas, reduce purchases to 4.9%, while imports from Spain of this hydrocarbon have had a reduced weight, 6.5% of the total. On the contrary, Nigeria leads the list of suppliers contributing 47.9%, followed by the United States (30.2%) and a strong appearance in the market of Trinidad and Tobago (9%).