Industry warily welcomes Iberian natural gas agreement

Portuguese industrial chiefs are suspicious that an agreement to offset the rising price of natural gas with caps will keep their energy costs down.

Although the agreement to limit inflation in gas prices has been welcomed by industries such as car component manufacturers and the textile and ceramics sectors, they point out that these limits only correspond to just one of the indices that determine the price of electricity.
They were reacting to the European Commission approval to set the average price of natural gas in Spain and Portugal to €50 per MWh for a year.
The European Commission gave its approval on Tuesday for an Iberian exception allowing Spain and Portugal to “decouple the price of gas” from that of electricity for the next 12 months.
The political agreement enables the creation of a temporary mechanism that will cap the price of gas to an average of €50 per megawatt-hour which should result in electricity bills being halved for about 40% of Spanish and Portuguese consumers with regulated rates.
Spain’s Ecological Transition and the Demographic Challenge that “all consumers will benefit from this agreement” and “the Commission has committed to working actively to increase the interconnection of the Iberian Peninsula with the rest of Europe.”
“It seems to be a very positive agreement which has resulted from the hard work of both governments”, said the leader of the ATP – the Portuguese Association of Clothing and Textiles, Mário Jorge Machado who believes that the cost of electricity production “will be lower” and that “all industries stand to gain”.
The leader of the association said that natural gas is “five to six times more expensive than it was a year ago”.
Jorge Machado said textile manufactures focusing on spinning and weaving had been hardest hit by the “electric shock” suffered in recent months — and which has been made worse by the war in the Ukraine.
With the accord, the ATP president believes that the sector will “at least not make a loss”.
The leader of the Portuguese Association of Ceramics Industries, José Luís Sequeira said that the measure “made sense” but that the effects would be limited.
“This deals with just the cap on one of the benchmarks that effects the price of electricity which does offer some stability”, he said.
Even given the Iberian agreement, Sequeira believes that the ceramics sector will continue to experience a “critical situation” since the support offered to offset increases in gas prices are “clearly insufficient” and “correspond only to one month of price increases.”
“There are 15 companies whose assembly lines are practically at a standstill, with just their sales channels operating to clear out existing stock,” he said.
The Spanish and Portuguese governments — both led by Socialist prime ministers — had been calling on Brussels since last summer to implement measures to reduce electricity prices which have skyrocketed as a result of increased demand for natural gas, supply chain issues and geopolitical tensions including the war in Ukraine.
EU member states trade electricity on a wholesale market based on a system of marginal pricing which in practice means that everybody gets the same price for the electricity they are producing regardless of how that electricity is produced — renewables are produced at near-zero cost. The price is then set by the most expensive way of producing electricity.
The Commission argues that “this model provides efficiency, transparency and incentives to keep costs as low as possible”.
Yet Madrid and Lisbon had argued the Iberian peninsula should be allowed to cap prices to a maximum of €30 ($33) per megawatt hour because of their low interconnection with the rest of the bloc, describing themselves as an “energy island”. The two countries also have a much lower dependence on Russian gas — they primarily import from Algeria — as well as high renewable generation.
The announcement on Tuesday comes after EU leaders agreed at their last Council summit in late March for the Commission to “urgently assess the compatibility of emergency temporary measures in the electricity market notified by Member States, including to mitigate the impact of fossil fuel prices in electricity production.”