Extension of the “Iberian Mechanism”

After the Portuguese and Spanish governments received the green light from the European Commission to extend the price-fixing mechanism for the Iberian Electricity Market (“MIBEL”) until December 31, 2023, Decree-Law 21-B/2023 (“DL 21-B/2023”) was published.

Decree-Law 21-B/2023 amended Decree-Law 33/2022 (“DL 33/2022”), which established an exceptional measure for a limited time period - until May 31, 2023. This allows prices to be fixed in the MIBEL by setting a reference price for the natural gas used in generating the electricity traded in that market, with the purpose of reducing energy prices. For more information on this mechanism, check this Legal Update.

• Main amendments to DL 21-B/2023:

Deadline extension: DL 21-B/2023 extends this exceptional measure until December 31, 2023, maintaining the original purpose of the measure, which is to limit the price of natural gas used in generating electricity;

New progression of the price of gas used for electricity generation: DL 21-B/2023 includes a new progression of the price of gas used for electricity generation – starting at 56.1 €/MWh as of April 2023 to a limit of 65 €/MWh in December 2023, thus imposing a monthly increase different from the 5 €/MWh increase provided for in DL 33/2022.

• Exemptions:

The settlement cost of the market adjustment value is not allocated to energy:

a)   used under fixed-price electricity supply contracts entered into before April 26, 2022, including electricity supply contracts with fixed prices under regulatory instruments approved before that date; and

b)   contracted under hedging instruments entered into after April 26, 2022, and before March 7, 2023, related to the period between May and December 2023.

In addition to the instruments already envisaged in DL 33/2022, hedging instruments entered into by consumers under variable-price electricity supply contracts are also considered to be instruments for verifying fixed-price electricity supply contracts reported by market agents.

• Communication deadlines

Decree-Law 21-B/2023 establishes deadlines for compliance with market agents’ reporting obligations to the appointed electricity market operator, to the overall manager of the National Electrical System (SEN), and to the Energy Service Regulatory Body (ERSE), in the following terms:

·  fixed-price contracts entered into before April 26, 2022 (or under previous regulatory instruments) - 5 business days; and

·  hedging instruments entered into after April 26, 2022, and before March 7, 2023, for the period between May and December 2023:

.  5 business days for hedging instruments related to May 2023;

.  15 business days for hedging instruments related to June to December.

• Entry into force

DL 21-B/2023 enters into force on March 31, 2023.

Due to the integration of the Portuguese and Spanish electricity markets into the Iberian Electricity Market, the extension of the electricity generating costs adjustment is adopted in a coordinated manner in the Iberian Peninsula. For more information on the extension of this mechanism in Spain, see here.