The gas cap has an unexpected rebound effect. One that Europe may not be able to afford

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Last spring, Spain and Portugal traveled to Brussels with a firm purpose: to establish a specific mechanism that would allow them to decouple the price of electricity from the dizzying rise in gas prices. They made it. The so-called “Iberian exception” came into force during the summer. Despite the fact that it appears in the electricity bill as a “gas cap”, in a specific and somewhat paradoxical way, given that it adds an extra price to consumption, has managed to reduce the price.

At a cost.

Upward consumption. illustrates it this graph prepared by ESADE and published in this studio on the impact of the “Iberian exception” in recent months: the consumption of electricity generated by combined cycle plants, supplied primarily by natural gas, increased from the entry into force of the “cap” (June) until the end of August. Basic economy: at a lower price, the demand increases.

Undesirable. This is a striking figure if we think of the efforts that a large part of Europe is undertaking to reduce its consumption, and therefore dependence, on gas. In September, the aggregate demand of the European Union fell by 14% compared to the average of the previous five years. A substantial decrease promoted fundamentally from the states (either by stopping lighting monuments, shop windows or turning off pindustry art).

question of incentives. ESADE’s own data leave no room for doubt about the impact benefit of the gas cap on the bill. During the summer, households attached to the regulated market (PVPC, the most vulnerable to fluctuations in the international price of gas) saved between 19% and 29% thanks to the “Iberian exception”. It is something that we have commented on other occasions, despite the compensation entered in the invoice. Electricity today is cheaper in Spain than before the measure.

Whatever happens this winter, Europe already knows where it has complete gas reserves: in Spain

Extension. The success of the gas cap in Spain and Portugal has led Germany and the European Commission to consider something that for many years seemed unthinkable: regulation of a market devoted to free competition (in addition to a specific tax on industry). That is, an “Iberian exception” applied to the rest of the continent. The electoral attractiveness for governments is undeniable. The cheaper the electricity bill, the happier its citizens will be.

Everything has a “but”. For some analysts it is a perverse incentive. Such an aggressive intervention in the electricity market and such an artificial depression of the price would only contribute to Europe continuing to consume as if the international situation had not changed. Europe would not need “cheap electricity” through the cap, but rather a reduction in its consumption, its dependence on gas and, as a consequence, structurally, lower prices on the bill.

Kindest Autumn. Regardless of the decision that the Commission adopts on the gas cap, Europe is facing a less traumatic autumn than it seemed. Gas reserves are full not only in Spain, the continent’s regasification power, but also in other countries. According to Reuters, it find 91%almost to the maximum. This will mitigate the supply crisis opened by the war in Ukraine and the breakdown of relations with Russia.

A priori, the cost should be contained if applied saving 15% raised by the Commission at European level from the end of August to March of next year. But a saving potentially in check if measures such as the Iberian exception, so beneficial in practice for consumers, are extended.

Image: GTRES

Last spring, Spain and Portugal traveled to Brussels with a firm purpose: to establish a specific mechanism that would allow…

Last spring, Spain and Portugal traveled to Brussels with a firm purpose: to establish a specific mechanism that would allow…

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