Spain and Portugal will impose a €40 ($42) per megawatt-hour price cap on natural gas used to produce electricity, Spanish Prime Minister Pedro Sanchez announced on Thursday.
The price cap will be passed by both governments on Friday, Sanchez said, and last for 12 months.
As Sanchez made the announcement, the European benchmark TTF gas was trading at around €106 per megawatt-hour. This year, Sanchez said, Spain has on average paid around €80.
The price cap means consumers will be paying around half the price for natural gas-derived electricity over the next year, according to Sanchez.
“This entails protection, predictability and security amid future increases in international energy prices in this extremely volatile geopolitical scenario,” he added.
The gas cap is also expected to lower the price paid for other sources of electricity, as power prices are largely determined by the most expensive generation technology. Over the past year, that has been natural gas.
The EU gave the Iberian nations the greenlight to temporarily impose price caps in May.