The electricity market has steadied after the peak spikes seen during the most intense moments of the energy crisis. After record highs, prices have moved toward a calmer trajectory. Last year, the price hovered around 87 euros per megawatt hour, the lowest level in three years. It remains well above the decade’s average of about 45 euros, yet it marks a notable drop from 2022’s 167 euros per MWh.
Around the time prices fell from historic highs amid extreme volatility intensified by Russia’s invasion of Ukraine, the electricity sector faced the opposite dynamic. Record prices above 700 euros per MWh were observed at the war’s onset, and the market subsequently experienced numerous fluctuations, including periods where prices slipped to zero. These cycles reflect the shifting balance of supply and demand in a highly dynamic wholesale environment.
In the wholesale market, electricity companies and traders buy and sell energy for immediate delivery, setting hourly prices for the following day. Throughout the year, hours with zero prices accumulated, driven by the interplay of supply from non-marginal technologies and sudden demand changes. Data from the Iberian Energy Market Operator (OMIE) and analyses by energy expert Francisco Valverde point to a record of 109 hours at a new price level in 2023, with hundreds more hours trading below one euro per hour.
Last year saw over a hundred hours of zero-priced trading in the electricity market. It was a rarity in 2022, when only four hours reached zero prices, all clustered near New Year’s Eve. A decade ago, the market recorded zero prices on a handful of occasions, but to see hours at zero price you have to go back to 2014, when 177 hours in the year were at zero euros.
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More renewable energy, less price
The electricity market, also known as the pool, sets prices through a marginal system that weighs the most expensive generation needed to meet demand. Some non-marginal technologies, including renewable sources, nuclear plants, and hydropower, can enter the market at zero price, which means prices can drop to zero when these sources sufficiently cover planned consumption. This happened during those 109 hours of 2023, underscoring how renewables influence price formation.
The rapid deployment of new renewables over the past two years, especially photovoltaic capacity, has increased the frequency of zero-price hours and intensified hourly price dispersion within the same day. Spain managed to produce more than half of its electricity from renewable sources in 2023, surpassing wind, nuclear, and gas as the leading generator that year.
Industry voices warn about cannibalization effects, where rising renewable output reduces electricity prices and could threaten the profitability of existing and future green installations. This creates concerns about investment incentives and market stability. Observers also note that the price drop to zero signals potential weaknesses in the system, particularly if storage capacity or interconnections with other European markets were stronger. Storing energy or importing during low-demand periods could smooth price fluctuations and reduce peaks.
Changes depending on the season of the year
Historically, the lowest prices tended to occur at night due to lower activity and consumption. Yet recent price charts show a seasonal shift. In the brighter months, especially April to September, the cheapest hours cluster around midday as higher solar output boosts generation and shapes price formation. The self-consumption trend also pushes prices down during these hours.
Conversely, autumn and winter, notably from November to January, continue to see the dawn as the cheapest period relative to the average market price. This occurs when solar generation wanes and wind remains a strong contributor, creating a different daily price pattern and more pronounced early-morning price dips.
A blend of reduced demand and the growing share of renewables makes zero-price hours more common, particularly on weekends and holidays when consumption drops. For example, Sunday, November 5, saw 16 consecutive zero-priced hours, the most in nearly a decade. Energy expert Valverde notes that such extended zero-price periods have not been observed since February 8, 2014, when 17 hours were recorded in a single day and year overall.
There are only two days in Spanish electricity market history when zero prices persisted throughout an entire day, March 29 and April 1, 2013, during Holy Week. However, because regulated tariff pricing at that time was settled through quarterly auctions that set the total electricity bill, wholesale market fluctuations did not directly translate into consumer prices on those days.