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By Sergio Goncalves

LISBON (Reuters) – Portugal expects talks with Spain and Brussels on a temporary mechanism to decouple Iberian electricity prices from soaring natural gas will be concluded in a matter of weeks, Environment Minister Duarte Cordeiro said on Wednesday.

European Union leaders granted Portugal and Spain permission in late March to find a mechanism to manage their own electricity prices, which tend to be determined by expensive fossil fuel even though the Iberian peninsula has large amounts of renewable power.

As Iberia has fewer connections with the rest of Europe, it is possible to find a solution within the Iberian electricity market (MIBEL) that can protect the more exposed power generating producers,” the minister told Reuters.

We are negotiating with Spain and the European Commission very calmly and we don’t see the need to be disclosing the intermediate steps of a negotiation process. We expect to have a conclusion very soon,” he said, adding he hoped that meant within a few weeks.

He said details, including the duration of the mechanism and potential limits on electricity exports to the rest of Europe, were still being negotiated.

A European Commission spokesperson said it was “committed to urgently assess” whether the proposed measures are aligned with EU state aid rules and internal energy market laws, and intended “to use the foreseen flexibility in its state aid toolbox to support the economy” given high energy prices.

The Iberian market would be decoupled from gas markets by means of a price cap, the level of which must also be determined.

As it stands, prices at which Spanish and Portuguese generators sell electricity in the MIBEL are determined by the highest marginal cost of production, which is that of gas-fired power plants and coal power plants.

By limiting the price of fuels for those plants, Spain and Portugal hope to cut energy bills, which were rising even before energy producer Russia’s invasion of Ukraine on Feb. 24.

Spain and Portugal initially proposed to Brussels a cap on the price of natural gas and coal for use by power plants at 30 euros ($32.5) per megawatt-hour (MWh).

The price of gas on the Iberian wholesale market MIBGAS was around 80 euros per MWh on Wednesday, about four times higher than a year ago.

($1 = 0.9222 euros)


(Additional reporting by Kate Abnett, editing by Andrei Khalip and Barbara Lewis)

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