The Government is considering capping the wholesale price of electricity as an emergency way to decouple it from gas, triggered by the war in Ukraine. This should translate into a reduction in electricity from April for consumers in the regulated market, the impact of which will have to be assumed by energy companies. This is stated by the third vice president and minister for the Ecological Transition and the Demographic Challenge, Teresa Ribera, who maintains that the shock plan that the Government is finalizing will also include fiscal, regulatory measures and an expansion and improvement of the electricity social bonus.
What is the best way for the Government to decouple the price of gas from electricity?
We are looking at different things and we know that other Member States are proposing other things and that the Commission is looking at all of them. It may be that we put a maximum price on the electricity market. It may be that we put a maximum price on natural gas when it goes to make offers to the electricity market. And it may be that we permanently remove gas from the electricity market and build a much more complicated system in which each technology is remunerated according to its costs and profitability. The different alternatives are being evaluated, but the truth is that the simpler it is, the better. To the extent that it has to be something urgent, it will be something temporary. Another thing is that when the Agency for European Energy Regulators (ACER) presents its recommendations in April, it will probably lead to the opening of a debate on how to evolve the electricity market for the coming years in Europe. That will be a calm debate, regarding an evolution and an in-depth regulatory transformation. But now what we need is to act now to be able to correct this tremendous price signal that we have been seeing in recent weeks.
We cannot afford the luxury of the industry closing due to a lack of reaction from regulators
If there is no agreement, will the Government intervene in the market without permission from Brussels?
Our responsible bet is to achieve a unanimous agreement on the part of Europe in what is Europe’s competence. It is also true that we are a government that knows the limits of its society and its economy and if there is no timely response in Europe, we would have to consider acting outside of Europe.
When?
We cannot afford the luxury of the industry shutting down as a result of a lack of reaction from regulators. We need to intervene very quickly. And what the industry says, and it is true, is that there is no way to obtain electricity in the volume that they need if it does not have the wholesale market as its fundamental reference. I believe that to the extent that the European Council (March 24 and 25) supports this separation, the decoupling between the price of gas and the operation of the electricity market will be seen in April. Each one’s electricity bill depends on our contracts, on our rates. There are many of our contracts that do not depend on the wholesale market. But those that depend on the wholesale market (PVPC and indexed free rates) will be cheaper in April.
Who will bear the cost?
It will be the electric ones that will enter less. The energetic ones. Because we can also find that a cap is established in gas generation and, therefore, they would produce less income for the gas companies.
Will there be direct aid for the sectors most affected by the rise in energy prices?
There are already direct aids. The President of the Government announced a coverage of 80% of the bill tolls for the electro-intensive industry, that is, that technically they will only pay for electricity consumption. It is necessary to see if there are other things that may be compatible and that may make sense, in the same way that lines of liquidity or direct financing were proposed on the occasion of the pandemic. But that must be seen in detail because there may be differences from one sector to another.
We are going to expand the coverage of the electricity social voucher. The companies will continue to finance it
Will there be other measures to make receipts cheaper before decoupling the market?
Domestic consumers and industry already have a very important tax reduction. In addition, the price of gas in the rate of last resort, which is the one most frequently found in homes and SMEs, cannot grow more than 5% per quarter. And the industry has a reduction in what they should pay to maintain the electrical system and flexibility in access to gas contracts. In addition, we are going to provide as much as possible other tools that allow us to reduce our consumption with solar roofs, savings and energy efficiency. And along with this, given the circumstances that I would describe as an energy emergency, we need to reinforce our response with a much broader regulatory and fiscal package, which is what we are preparing and which, in principle, we want to see come out in a manner consistent with the European Council. That is, at the end of March.
Will the measures include advancing the adjustment of the remuneration of the oldest renewables (RECORE) by one year?
We are working on that hypothesis and how much it is reduced. These plants are guaranteed a reasonable return that is adjusted every three years. We are talking regarding reasonable returns around 60 and 70 euros per megawatt-hour, and the other day they charged, for example, 540 euros per megawatt-hour. This does not mean that they are going to keep it, but it does mean that there is a huge advance that has a cost for the system. So let’s cut it. We are talking regarding more than 1,000 long million euros that will be reduced from bill charges and that will benefit all consumers.
Will the beneficiaries of the social bonus leave the electricity market to have a fixed-price rate?
We have a system that allows the electricity sector companies themselves, the marketers, to finance the social bonus and that explains why it is linked to the contract. It is a difference with respect to the thermal bonus that is financed from the General State Budgets. The electricity voucher is essentially financed by the companies and our intention is to expand the coverage of the social voucher, simplify it and introduce improvements. And we believe that it is good that the electrical part is part of the public service obligations of the companies. The first premise is this, but there are other dimensions, of direct social policies or savings, in which a maximum effort must be made in complicity with all the administrations, such as housing rehabilitation or coverage through social services.
The Treasury is evaluating a tax relief package for domestic consumers
Is the Government considering reducing VAT on gas?
The issue of VAT on the gas consumed by the industry, because it is paid but passed on, is not the same as that of households. In the gas that we consume in our homes, the debate can be raised regarding whether to introduce any fiscal relief, even if it is temporary. The Minister of Finance is assessing how to build a tax relief package for domestic consumers, if it should be dedicated to gasoline, gas, electricity, or a little of everything.
Is there a figure that can serve as a reference for the relief objective pursued by the Government?
The eventual extension for the entire year 2022 of the current package, without additional measures, is more or less 10,000 million euros of public budget. We have to see how many more resources we can have and how they are organized. Along with these immediate fiscal relief measures, there are many things that take effect, not from one day to the next, but from one month to the next, on which we must place particular emphasis, such as the rehabilitation of buildings or solar roofs , facilitate the deployment of large-scale or local renewables, facilitate the use of biomethane and biogas. All of that is part of that package.
I like slogans like ‘Be in solidarity with Ukraine, consume less gas’
Do you agree with Borrell’s proposal to lower the heating by one degree?
I believe that replacing such an important supplier is very complicated and to think that leaving Russia in its corner will not have consequences is not real. Our responsibility is to mitigate these consequences as much as possible and, above all, to be with the most vulnerable consumers. I like how in some countries around us slogans such as: “Be supportive of Ukrainian society, consume less gas” are being generated. And I don’t think the main responsibility should be that of the citizens, but it is obvious that the citizens can contribute a grain of sand when their energy consumption behavior is as adjusted as possible.
Should Spanish companies that continue to buy gas and oil from Russia also make an effort?
Completely. It is true that 8% of the gas we consume comes from Russia and regarding 7% of the oil we consume comes from Russia. We are far below the European Union, but it is obvious that sooner or later, either by decision of the company itself or because specific measures are adopted to limit the import of gas and oil from Russia, we must be prepared for that scenario and I think the companies know that.
Is there a date for Spain to stop importing Russian oil and gas?
I insist that being united in Europe on this is very important. In other words, it probably costs less for Spain than for Germany to introduce a limitation of these characteristics and for Spain it costs much more than for Germany not to introduce temporary measures to decoupling the electricity market from gas and I think we have to find a formula with which Europe as a whole remains united in the face of the situation that the invasion of Ukraine is causing us.
Replacing such an important supplier is very complicated and to think that leaving Russia in its corner is not going to have consequences is not real
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Will there be European funding for MidCat to be able to send gas to Europe?
The commission is analyzing and seeing the proposal. The Spanish gas consumer pays for charges and tolls an amount that includes the infrastructure of 6 regasification plants, their security of supply. It is the rest of Europe that is asking for an alternative way to guarantee its supply and it is the rest of Europe that must contribute to the construction of that infrastructure. There is another aspect and that is that it makes little sense for us now to divert resources to building a transport infrastructure that does not connect beyond the Pyrenees with all the gear of gas pipelines in central Europe. Therefore it has to be a concerted decision with France.
