Spain and Portugal approve gas price cap to cut energy bills

EU to grant both countries special energy status

The Spanish and Portuguese governments have approved a cap on the price of gas used for generating electricity in a move which they say will substantially cut many consumers' energy bills.

The measure comes after months of spiralling energy costs in the two countries which have hit both households and industry, as well as pushing inflation to record levels.

The cap means that the cost of gas on the wholesale market used for energy generation will be fixed for the next 12 months.

Before his cabinet approved the measure, Spain’s Socialist prime minister Pedro Sánchez described it as providing “important protection and an element of predictability, calm and security in the face of future rises in international energy prices”.


Portuguese prime minister António Costa, also a Socialist, approved the mechanism in a cabinet meeting on Friday.

The price cap follows several weeks of negotiations between Spain and Portugal and the European Commission, which in allowing the initiative has waived common market pricing rules, acknowledging that the two Iberian countries have exceptional energy requirements. Both have relatively little interconnection with the European energy supply.

The initiative will cap prices at €40 per megawatt-hour initially, rising to average at €48 per megawatt-hour. Analysts have estimated that the measure will mean a reduction of 20-30 per cent on the bills of around 10 million Spanish consumers whose energy contracts are tied to wholesale gas costs. Those consumers pay the top price regardless of the type of electricity they use.


"It's a reduction that consumers will notice in their bills – they don't have to do anything to benefit from it," said Spanish environmental transition minister Teresa Ribera. She said that windfall profits from energy companies would help finance the measure, although she did not give details.

The move is expected to have less impact in Portugal, where gas prices have less impact on consumer bills.

The cap will come into effect once the European Commission gives its final approval, which is expected to happen within the next two weeks.

Energy supply restrictions linked to the Ukraine war have accelerated an inflationary trend in many European countries caused by a surge in demand following the Covid-19 pandemic. Spanish consumer prices hit 9.8 percent in March, the highest for 37 years, before dropping slightly in April. Portuguese inflation in April was 7.2 percent, the highest since 1993.

Guy Hedgecoe

Guy Hedgecoe

Guy Hedgecoe is a contributor to The Irish Times based in Spain