Spain and Portugal get EU OK to subsidize electricity production

Spain and Portugal got the go-ahead from the European Commission on Wednesday to start directly subsidizing electricity production, amid spiking costs for consumers.

Under the plans, Spain and Portugal can help consumers "hit hard by the rise in electricity prices due to Russia's invasion of Ukraine," EU Competition Commissioner Margrethe Vestager said in a statement.

The temporary measures, valued at €6.3 billion ($6.8 billion) for Spain and €2.1 billion for Portugal, are to lower costs of electricity production for suppliers in the Iberian energy market.

The aim is to pass on the savings achieved in fossil fuel-fired electricity producers to consumers. The subsidies, in the form of grants, are to remain in place until 31 May 2023.

Madrid has come under severe public pressure to address extraordinary energy costs linked to hikes in wholesale electricity prices in Spain exposed to gas price increases due to Russia's invasion of Ukraine.

EU's market reform

Spanish Prime Minister Pedro Sanchez has pushed hard for wider market reform of the European Union's energy market, arguing that the price of electricity should be decoupled from the cost of gas and other fossil fuels.

Spain has so far failed to achieve this, meeting resistance from Germany and the Netherlands, among others, but along with Portugal did win concessions to implement special temporary price caps.

Sanchez has previously announced €16 billion in state aid and loans to help businesses and households weather the sharp rise in energy costs due to the war in Ukraine.