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    Spain caps gas prices as electricity prices continue to rise


    June 15, 2022 - CE Noticias Financieras

     

      Spain defended a new system to cap the price of gas and coal for power generation, saying the measure makes prices lower than they would otherwise have been as extreme summer heat stoked demand for air conditioning.

      Under the new system, Spain and Portugal have begun temporarily subsidizing the energy costs of fossil fuel power plants in an attempt to reduce high prices in the short term, while maintaining a longer-term focus on building renewable capacity.

      European governments are finding it difficult to manage rising gas and electricity prices, which have been driven by the Russian invasion of Ukraine.

      Day-ahead electricity was trading on Tuesday, the first day the new system came into force, at E165 per megawatt hour on the Spanish wholesale market, down 23% from the previous day, the Ministry of Energy and Environment said in a statement.

      However, the cost of paying gas plants the difference between the market price and the new capped price raised the actual cost to 225 euros per megawatt hour.

      This was due to the fact that wind generation is lower, and the more expensive gas generation will have to increase on Wednesday to its highest in a year, the Ministry said in a statement.

      According to the Ministry, without the new mechanism, the wholesale electricity price would have been about 240 euros per megawatt hour on Wednesday, almost 7% more than the actual cost.

      Spanish consumers are more exposed than those in many other countries to swings in energy markets because many of them buy power under contracts linked to fluctuating wholesale prices.

      The system will be in place until May 31, 2023.

      The Ministry of Energy and Environment stated that the system remains "effective" in reducing electricity prices, limiting windfall profits for power companies, and acting as a "firewall" against high gas prices.

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