CORRECTS European Commission allows Portugal, Spain to cap gas prices

CORRECTS HEADLINE AND PARAGRAPH 3

By Alyssa McMurtry

OVIEDO, Spain (AA) - The environment ministers from Spain and Portugal announced on Tuesday that the European Commission has given their two nations the greenlight to dramatically reduce electricity prices.

Electricity prices in the countries’ wholesale energy markets are currently hovering around €250 ($266) per megawatt-hour.

Now, the commission has given Spain and Portugal permission to enact a price cap that would mean the nations pay a maximum of €40 ($43) per megawatt-hour for gas, which tends to mark overall electricity prices. Over 12 months, the maximum price will have to gradually increase to an average of €50 over 12 months.

“Industries and domestic consumers will benefit from the decrease in the wholesale market prices. This agreement will protect us from turbulence and gas price increases,” said Spanish Minister Teresa Ribera at a press conference in Brussels.

In late March, after an intense discussion over how to cope with soaring energy prices in the EU, leaders decided to allow Iberia to act as an “energy island.”

The decision was due to vast amounts of cheap and renewable energy being produced in both countries, as well as few electricity interconnections with the rest of Europe.

The details of the plan will be ironed out in the coming days and need to be passed by both governments, but Ribera said electricity bills should be down in May.

According to Angel Talavera, head of European Economics at Oxford Economics, the sharp drop in electricity prices could “have massive implications for inflation this year, especially in Spain.”

In March, Spain's year over year inflation hit 9.8% – the highest rate since 1985. Most of the inflation was driven by soaring electricity prices, which reached a record high of nearly €600 in early March. As a consequence, several factories had to pause production.