Spain, Portugal to cap fossil fuel power prices as Ukraine war hikes energy bills

·2-min read
FILE PHOTO: A man walks near the Ignacio Perez operations plant near Alcanar

By Kate Abnett

BRUSSELS (Reuters) - Spain and Portugal next week will start subsidising fossil fuel power plants' generation costs, under a 8.4 billion euro ($9 billion) scheme designed to pull down electricity prices for consumers and industry.

European governments are struggling to manage surging gas and power prices, pushed higher by Russia’s invasion of Ukraine.

Both countries plan to massively expand renewable energy generation this decade, to cut reliance on fossil fuels - but in the short term are seeking ways to curb the cost of electricity, which is often set by gas generators.

Spain on Thursday confirmed its scheme, together with Portugal, will launch on June 14. The European Commission on Wednesday confirmed the scheme complied with EU state aid rules and acknowledged the harm rising prices had caused their economies.

The measure would reduce the Iberian wholesale power price, by lowering the input cost of fossil fuels - gas and coal - that power plants use to generate electricity, enabling plants to sell power at lower prices.

Spain and Portugal would pay gas power plants the difference between the market gas price and a capped gas price. The price will be capped at 40 euros per megawatt-hour for six months, after which it will increase by 5 euros per MWh per month until May 31, 2023 when the measure expires.

Data from Spain’s Mibgas gas market operator showed gas was trading at a daily price of 71.25 euros per MWh and a monthly price of 71.50 on Thursday.

The scheme is expected to cost Spain 6.3 billion euros and Portugal 2.1 billion euros. That will be funded through "congestion income" that Spain collects from cross-border power trade between Spain and France, and via a charge Spain and Portugal's governments will impose on buyers who benefit from the measure.

($1 = 0.9377 euros)

(Reporting by Kate Abnett; additional reporting by Isla Binnie; Editing by Lisa Shumaker)

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