Iberian Mechanism reduces inflation and light prices by 31.8% in Spain

The Iberian mechanism, which capped the price of gas used to generate electricity, made electricity cheaper for tariff-regulated consumers in Spain by 31.8% and lowered inflation in Spain for 2022, according to a study published this Wednesday.

This mechanism, agreed by Spain and Portugal with the European Union, has been in place since June 15, 2022, and until the end of last year, Spain’s regulated tariff was 31.8% “cheaper than it would be in the world without the Iberian exception,” the business study concludes. -school ESADE from Barcelona, ​​signed by four researchers: Manuel Hidalgo-Perez, Ramón Mateo Escobar, Natalia Collado Van Baumbergen and Jorge Galindo.

“We estimate that the savings during 2022 amounted to about 209 euros per family,” the researchers write in a study that Lusa had access to.

According to the same study, taking into account the number of light contracts in Spain affected by the Iberian mechanism, the “total savings” last year for these consumers amounted to between 1.88 and 2.1 billion euros.

According to the findings of the researchers, this decline in electricity prices in Spain affected inflation in Spain last year.

Thus, the average inflation for 2022 in Spain “would be 0.3 points higher” without the Iberian mechanism, that is, it would be 8.7%, not 8.4%.

Inflation is an indicator that reflects the increase in prices in the country in relation to the same period of the previous year.

In the countries of the eurozone (with a single European currency), the average inflation in 2022 was 8.38%, settling at the end of December at 9.2%.

Spain’s Regulated Electricity Tariff, or Voluntary Small Consumer Price (VPV), is indexed to the wholesale market price of gas, which is the price electricity companies pay when they buy gas to generate electricity.

With the help of the Iberian mechanism, the maximum price of gas used for electricity generation was determined, and the producers are compensated for the difference in relation to the real value in the market.

In Spain, compensation is distributed between consumers who have a regulated tariff, to which new customers are added and consumers who have other tariffs and who renew their contracts.

ESADE business school researchers in a study published this Wednesday concluded that the application of this mechanism also had a “downside”, such as greater gas consumption for electricity generation, compared to national and European reduction targets.

Another disadvantage is Spain’s lower electricity prices compared to neighboring countries, which may have “contributed to increased exports” to France of electricity subsidized in a beneficial way for French consumers, but “at the expense of the Spaniards”.

In 2022, the study highlights, Spain’s electricity exports to France “more than doubled compared to 2021, while imports fell by less than half, reversing the traditional balance between the two countries,” while global exchange increased. by 56.3%.

It is “quite likely” that without the Iberian mechanism, “we would not have seen similar export volumes,” the authors of the study conclude.

Regarding Spain’s greater gas consumption for electricity generation last year, the researchers say that, however, “the largest increase occurred in the summer months”, which also suggests the impact of the drought, which has prevented, for example, the production of hydroelectric power plants. , which depends on the water stored in the dams.

Measures such as the Iberian Mechanism “react to the urgency” of the current situation generated by the war in Ukraine “seemingly in a flexible way”, leaving, however, the debate about “structural changes at the Spanish and European level”. although “structural reform and concrete action are not theoretically incompatible,” the authors of the ESADE study argue.

“A sense of short-term effectiveness without concrete data fuels the incentive for politicians to support measures that were originally intended to be temporary,” they add.

The Iberian mechanism is valid until May, but Portugal and Spain have already applied to the European Commission with a request to extend the measure.