The European Union will allow Spain and Portugal to use billions of euros in state aid to help ease the burden of spiraling electricity prices on consumers in the Iberian Peninsula as Russia’s war in Ukraine exacerbates an energy squeeze.
The 8.4 billion euros ($9 billion) in aid – 6.3 billion euros ($6.8 billion) for Spain and 2.1 billion ($2.3 billion) for Portugal – is intended to help to pay the fuel costs of electricity producers. The European Commission, which polices state aid rules, is permitting the program to run for a year.
The war in Ukraine has caused gas prices to rise, creating a knock-on effect for the already soaring electricity prices in the two countries.
Spanish Prime Minister Pedro Sánchez welcomed the decision, predicting Thursday it would bring an immediate reduction in household electricity prices of up to 20%.
His Portuguese counterpart, António Costa, said after weeks of negotiations with its EU partners the Iberian countries had “come a long way … to shield businesses and families from the surge in prices.”
The decision also protects Iberian consumers against future rises “if the war in Ukraine goes on for longer or worsens,” Sánchez said.
Spain and Portugal signed off on a temporary cap on natural gas prices last month in a coordinated move described by Portugal’s environment minister as an “unprecedented” bid to temper soaring energy prices and inflation.
The move approved in Brussels late Wednesday skirts EU common market rules, but the EU’s executive commission said it was permitting it, “recognizing that the Spanish and Portuguese economies are experiencing a serious disturbance.” It means that gas used for power generation will average just under 50 euros ($54) per megawatt-hour until May 31, 2023.
Spain believes it will immediately reduce costs for a third of domestic consumers and 70% of the industry. But some Spanish energy companies have criticized the plan, citing concerns that the new rules will distort the market.
Commission Executive Vice-President Margrethe Vestager said the program would also allow Spain and Portugal to reform their electricity systems in line with climate change goals and “ultimately mitigate even further the effects of the energy crisis on final consumers.”