The Iberian Exception: Update to our Pan-European Price Models
On Tuesday 26th March, the governments of Spain and Portugal reached an agreement with the European Commission regarding what's being called 'the Iberian exception'. Under the agreement, Spain and Portugal will set a mechanism in place, allowing them to cap the price of gas for power production to an average of 50 euro/MWh over the next 12 months.
Published
May 3, 2022
Initially the price will be set at 40 euro/MWh, with a gradual increase over the period. No border adjustment will be in place, therefore both XB volumes and power prices within the SDAC area will be impacted by the Iberian exception.
In order to tackle the effect of prices and flows within our short and mid-term models, we have updated the gas price input into our system as illustrated on the below graph. Starting on 3rd May 2022, we will begin showing the results of the models, taking into consideration the blue curve representing our assumptions on gas price for power production in Spain and Portugal.
The graph below shows the comparison of the price of gas price used for Spain and Portugal on 2nd May. The "uncapped line" represents the original model run, with the other "capped" blue line showing the change from adopting the cap from 15th May onwards, reaching a final average of 50 euro/MWh.
In the table below we show the impact in terms of the change in our monthly average price of our forecasts performed. This is shown for our long term Complete Forward model on the left column, and our short term SpotEx model on the right.
From the new model runs, we can provide two interesting observations out of the complete FWD model shown in the graphs below:
1) Firstly, the large monthly increase of the Iberian thermal gas power production in MW can be seen:
2) And secondly, we have observed the change in monthly XB flows on the ES-FR border in MW:
