- At the European Council of 24 and 25 March, EU leaders recognised the particular situation of the Iberian peninsula, with few interconnections.
- The door opened to measures of its own on electricity prices, though no concrete measure was yet set.
- It is worth knowing one’s own electricity contract: whether the price is fixed or indexed, when it expires and which clauses allow it to be reviewed.
At the European Council held on 24 and 25 March 2022, the leaders of the European Union recognised the particular situation of the Iberian peninsula, with few energy interconnections to the rest of the continent, and opened the door to measures of its own on electricity prices. Spain and Portugal thereby gained room to act within the European framework. For a country, having Europe accept that its situation is different is the step before any intervention of its own.
The recognition did not yet set any concrete measure, but it had political and practical importance. Companies with significant electricity consumption, and households too, saw electricity as one of the main drivers of rising prices, and any change in market rules could affect the cost scenario for the rest of the year. That is why it was important to follow the next steps rather than stop at the headline.
What an ‘energy island’ is
The Iberian peninsula is poorly connected to the rest of the European electricity and gas network. That means that, unlike other countries, it has difficulty exporting its surpluses or importing energy from its neighbours, and its prices do not always benefit from the integration of the European market.
The practical consequence is that the Iberian system depends more on its own generation and has less capacity to offset peaks in demand or price with imports. It is a structural rather than a temporary feature, and that is why it forms part of the debate on European energy policy. Recognising it makes it possible to propose solutions adapted to that reality instead of applying the same recipe to every country. The underlying discussion is how much connection an electricity system needs, a question with technical, economic and political answers.
The origin of the ‘Iberian exception’
This was the origin of the so-called ‘Iberian exception’. The European recognition did not yet set any concrete measure, but it gave Spain and Portugal the political room to design an intervention on electricity prices without clashing with common rules.
That Brussels accepts treating a specific situation differently does not mean that any measure is possible: interventions in a market require design, timetables and approval, and their real effect on prices depends on how they are fleshed out. Meanwhile, companies should budget prudently and not take for granted a cheapening that does not yet exist. A realistic budget includes scenarios with and without measures, and is updated when the details are known.
What to look at
For Spanish companies, anticipating how it would affect their electricity contracts was key to budgeting for the rest of the year. It is worth knowing whether the contract is at a fixed price or indexed to the market, when it expires and which clauses allow it to be reviewed, before the new rules change the picture.
If the contract is at a fixed price, a fall in the market is not passed on until it is renewed; if it is indexed, it shows sooner, but so do rises. Reviewing the contracted power, the time bands and the options for self-generation can reduce the bill regardless of what policy decides. An energy adviser can compare offers using real consumption data. Consumption habits, such as shifting part of the use to the cheaper hours when the tariff allows, also count.
In energy, knowing your own contract is the best cover.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
