By Kate Abnett
BRUSSELS, Jun 9 (Reuters) - Spain and Portugal will start subsidizing the generation costs of fossil fuel power plants next week as part of an 8.4 billion euro ($9 billion) plan aimed at reducing electricity prices for consumers and industry.
European governments are scrambling to manage rising gas and electricity prices, which have been increased by Russia's invasion of Ukraine.
Both countries plan to massively expand renewable power generation this decade to reduce dependence on fossil fuels, but in the short term they are looking for ways to rein in the cost of electricity, which is often set by gas generators.
Spain confirmed Thursday that its plan, along with Portugal's, will be launched on June 14. The European Commission confirmed on Wednesday that the plan complied with EU state aid rules and acknowledged the damage that rising prices had caused to their economies.
The measure would reduce the wholesale price of electricity on the Iberian Peninsula by lowering the cost of fossil fuels (gas and coal) used by power plants to generate electricity, allowing them to sell it at lower prices.
Spain and Portugal would pay gas-fired power plants the difference between the market price of gas and a maximum gas price. The price will be capped at E40 per megawatt-hour for six months, after which it will increase by E5 per MWh per month until May 31, 2023, when the measure expires.
Data from Iberian gas market operator Mibgas showed that gas was trading on Thursday at a daily price of 71.25 euros per MWh and a monthly price of 71.50.
The plan is expected to cost Spain E6.3 billion and Portugal E2.1 billion. It will be financed by the "congestion revenues" that Spain collects from cross-border electricity trade between Spain and France, and by a charge that the Spanish and Portuguese governments will impose on buyers who benefit from the measure.
(1 dollar = 0.9377 euros)
(Reporting by Kate Abnett; additional reporting by Isla Binnie; editing by Lisa Shumaker; translation by Flora Gómez)