Spain, Portugal eased energy prices. Can they teach the EU?

MADRID (AP) — Households and businesses across Europe have struggled with high electricity prices for months, though they have fallen since late August peaks.

Electricity costs are intrinsically linked to natural gas prices, which spiked after Russia invaded Ukraine and drastically reduced flows of the fuel used to heat homes, generate power and run factories as the European Union sanctioned Moscow.

Spain and Portugal have managed to free themselves from the EU pricing system and say the benefits are noticeable. It is offering a lesson to the 27-nation bloc as it works this week on ways to temper energy prices going into winter.

While gas prices have fallen recently, helping bring down electricity costs, the winter heating season is ahead and there are uncertainties about supply and how cold it will get.

Here’s what to know about what has been dubbed the “Iberian exception" in Spain and Portugal and how it could influence EU discussions:

HOW DOES NATURAL GAS AFFECT ELECTRICITY PRICES?

Across the European Union, electricity prices are dependent on gas-fired power plants to fulfill demand and set prices. Each country’s energy sectors — renewables, coal, nuclear and gas — contribute what they can to the energy grid throughout the day. Countries try to rely on the energy they produce first but resort to burning imported gas to ensure the electricity demand is met.

Under the system designed in the early 1990s, the price of whichever energy source is most expensive in feeding the grid — nowadays, natural gas — is the one that establishes the price for each megawatt of electricity provided by all the sources. The system was designed to favor more cost-efficient technologies.

With prices having soared this year for Russian gas, which Europe relied on heavily before the war...