EU agrees to let Spain, Portugal cap cost of gas for power

By Sergio Goncalves and Isla Binnie

LISBON (Reuters) - The European Commission has agreed to allow Spain and Portugal to place a temporary cap on reference prices for natural gas and coal used by power plants of 40 euros per megawatt-hour, their ministries in charge of energy and the environment said on Tuesday.

European countries are struggling to manage surging gas and power prices, pushed higher by Russia's invasion of Ukraine, and to cushion their effect on voters' spending power.

"The (political) agreement allows (us) to protect consumers exposed to the market," Portugal's Environment Minister Duarte Cordeiro told reporters in Brussels. "The reference price for gas today (in the wholesale market) is 90 euros. This protects everyone."

The price cap will average out at 50 euros over the coming 12 months, Cordeiro said after meeting Spanish Energy Minister Teresa Ribera and EU antitrust chief Margrethe Vestager in Brussels.

"The meeting allowed us to reach a political agreement in principle with the Spanish and Portuguese authorities which would enable them to take proportionate and temporary measures to address electricity price levels," a European Commission spokesperson said, adding that technical work would continue.

The Commission spokesperson did not provide details of the scheme but said it would preseve the integrity of the EU energy market and maintain incentives to shift to cleaner energy.

The meeting was called to discuss the Spanish and Portuguese proposal to manage their own electricity prices, which are often set by expensive fossil fuel even though Iberia has large amounts of renewable power.

"It is important to have a tool that reduces our exposure to the turbulence and volatility of the electricity market and the price of gas in this moment," Ribera said.

Power industry groups have warned against intervening in the market.

Discussions touched on whether the temporary measure would affect power exports from Spain to France, Ribera said.

"The commission said it wanted flexibility not to introduce more limits at the border, but obviously a French consumer has to pay the same as an Iberian consumer," she said.

Portugal's Energy Secretary of State Joao Galamba told Reuters the measure limits the price of gas purchased by thermal plants, including gas plants, co-generation sites and coal plants.

He said it would not create tariff deficits or damage competition because consumers most exposed to the daily spot market would bear the costs.

The EU also committed to be more active in increasing energy connections with the rest of Europe, Ribera said, adding shutdowns at French nuclear plants had made the need for these connections clearer.

Portugal's Duarte Cordeiro said: "It is clear that there is a flaw and either the price formation needs to be corrected or the connections between Iberia and the rest of Europe increased."

(Reporting by Sergio Goncalves and Isla Binnie; writing by Andrei Khalip; editing by Jonathan Oatis and Barbara Lewis)