Spain’s Renewable-Energy Boom Loosens Gas’s Grip on Power Prices

Soaring renewables output in Spain is weakening gas’s grip on electricity prices, setting the country apart from much of Europe where fossil fuels still dictate the cost of power.

European countries generally use a marginal pricing system, where the most expensive megawatt needed to meet demand — frequently a gas-fired plant — sets the price for all generators.

But Spain’s rapid renewables build-out means that in the first half of this year, its power prices were set by fossil generation just 19% of the time, down from 75% in 2019, according to a report from think tank Ember. As a result, wholesale electricity was almost a third cheaper than the European Union average.

The country has doubled its wind and solar capacity since 2019, adding more than 40 gigawatts, according to BloombergNEF data. Germany, the continent’s biggest energy market, has also seen significant growth in renewables, but its exit from nuclear generation means it’s still dependent on gas to meet demand.

Read More: German Power Prices to Stay High as Link to Gas Seen Stronger

“Spain has broken the ruinous link between power prices and volatile fossil fuels, something its European neighbors are desperate to do,” Chris Rosslowe, a senior energy analyst at Ember, said in the report.

Despite its progress, the country used gas-fired power to stabilize the grid following a nationwide blackout in April. Costs related to that highlight the need for increased investment in networks and batteries, the think tank said.