Environment Minister Calls a Return of the 2022 Iberian Gas Price Cap a Mistake, Turning Down Business Confederation CIP

Environment and Energy Minister Maria da Graça Carvalho has ruled out bringing back the Iberian mechanism, the cap on the price of gas used to generate electricity that Portugal and Spain ran from June 2022 to the end of 2023. "From the point of view of electricity market design, the Iberian mechanism is a mistake, a mistake that penalises the economy," she told MPs on Tuesday 3 November, according to ECO. She spoke at a hearing on the Orçamento do Estado para 2027 (OE2027, the 2027 State Budget).

The minister said the measure caused investment in renewable energy in Spain to fall sharply, and that the effect was also felt in Portugal. "The right policy is not to have an Iberian brake and, if necessary, to help the sectors afterwards," she said, as reported by ECO.

Who wants it back

The call came from the Confederação Empresarial de Portugal (CIP, the Confederation of Portuguese Business). In a letter to the minister dated 24 September, CIP warned that persistently high and volatile energy prices were costing Portuguese firms competitiveness, especially those that rely heavily on natural gas, ECO reported in October. Among four requests, it asked for the Iberian mechanism back and for a temporary cut in the Imposto sobre os Produtos Petrolíferos (ISP, the tax on oil and energy products) charged on natural gas.

On the gas cap, CIP wrote that "a measure of this nature can significantly benefit electricity consumers and industrial competitiveness". It added that any revival should be "strictly temporary" and cleared in advance under EU market and state-aid rules.

How the mechanism worked

The scheme was set up by Decreto-Lei n.º 33/2022 (Decree-Law 33/2022) of 14 May 2022, after the war in Ukraine drove up fuel prices. It fixed a reference price for gas burned in power stations, starting at 40 euros per megawatt-hour. Gas plants were compensated for the gap between that reference and the market price of gas, a cost the decree charged to electricity consumers who did not have fixed-price supply contracts.

The government of the day said the European Commission approved the measure on 8 June 2022 and that it would run from 15 June 2022. In March 2023 the two governments obtained an extension to 31 December 2023, with the gas reference rising from 55 euros in March to 65 euros in December.

What it means for household bills

For now, nothing changes. The Entidade Reguladora dos Serviços Energéticos (ERSE, the energy regulator) published its proposal for 2027 electricity tariffs on 15 October. It would raise regulated low-voltage prices by an average of 1.5 percent in January, adding 0.54 to 1.28 euros to a typical monthly household bill. It would also cut the grid-access charges that every customer pays, whatever their supplier, by 13.7 percent. ERSE takes its final decision by 15 December.

Households on the free market, about 5.85 million customers at the end of June according to ERSE, will see changes that depend on what their supplier pays for energy on the wholesale market, which has been unusually expensive this autumn.

What the government is offering instead

The minister said current fuel relief, which hands extra VAT revenue back through a lower ISP, could continue past its end-of-year deadline. "It will be continued if necessary, if prices remain high," she said, according to ECO. Support for electricity-intensive industry to cover carbon-permit costs this year has risen from 30 million to 80 million euros, short of the 100 million promised, a pledge that carries over to 2027, ECO reported.