Extension of Iberian electricity mechanism

Recently published in the Official Gazette of the Spanish State (“BOE”) is Royal Decree Law 3/2023, of March 28 (“RDL 3/2023”), extending the mechanism for adjusting production costs to reduce the price of electricity in the wholesale market regulated under Royal Decree Law 10/2022, of May 13 (“RDL 10/2022”).

RDL 10/2022: the Iberian mechanism

Under RDL 10/2022, which established a one-off mechanism for a temporary and limited period that was to end on May 31, 2023, the adjustment would be implemented by mitigating the impact of the gas consumed by combined-cycle power plants on the offers determining electricity prices on the wholesale market, and by establishing a reference gas price starting at €40/MWh for the first six months and increasing by €5/MWh per month after that. For more information about RDL 10/2022, see our Legal Flash on Iberian mechanism to reduce electricity prices.

RDL 3/2023 extends this mechanism until December 31, 2023, establishing monthly values for the reference gas price with monthly increases of €1.10/MWh, from €55/MWh in March to €65/MWh in December 2023.

Also, and in relation to the framework under RDL 10/2022 for an exemption on the payment of the adjustment of energy volumes that, through power purchase agreements, would have been covered from the volatility of the prices on the daily and intraday markets, RDL 3/2023 establishes a new period of 15 business days from its entry into force for the submission of power purchase agreements signed before March 7, 2023, and extends its effects from June to December 2023.

RDL 3/2023: the adjustment mechanism regulated

RDL 3/2023 comes into force on March 30, 2023. However, the adjustment mechanism regulated in RDL 3/2023 will apply from the date established in the ministerial order from the date the BOE publishes the ministerial order regulating the authorization of the European Commission.

Due to the integration of the Spanish and Portuguese electricity markets into the Iberian Electricity Market, the mechanism’s extension will be adopted simultaneously all over the Iberian Peninsula. For more information about the extension of the adjustment mechanism in Portugal click here.