An EU-backed cap on the price of natural gas used by power plants in Spain and Portugal came into effect on Tuesday to ease the spiralling electricity prices in the two nations.

Russia’s invasion of Ukraine has caused gas prices to rise, pushing up already soaring power bills in the two countries which have little electricity interconnection with the rest of Europe.

Last week, the European Commission agreed to initially cap gas used for power generation at €40 per megawatt-hour, with the price limit projected to average out at €50 over the coming 12 months.

The Spanish government predicts the measure − which will be in effect until May 31, 2023 − will lead to a reduction in household energy prices of up to 20 per cent.

Spain’s Energy Minister Teresa Ribera said the cap will "protect" Spanish and Portuguese household in a "turbulent and complicated" energy market due to the war in Ukraine.

The cost of energy has risen sharply in recent months in Spain and Portugal because of European electricity market rules, which force producers to sell their energy at the price of the most expensive technology − currently gas-fired power stations.

For months, Madrid and Lisbon have been fighting against this system, which was deemed unsuited to the energy situation on the Iberian Peninsula which have large amounts of renewable power.

But several European countries were opposed to a reform, saying they feared the impact on competition within the EU.