Spain pushes for a sweeping reform of its electricity market to cut prices and reduce volatility
The Spanish government has submitted to the European Commission a broad and decisive reform plan aimed at lowering price levels and stabilizing electricity markets over the long run. Brussels is preparing to implement changes in how the electricity market operates, and Spain leads by presenting what it calls a comprehensive strategy to overhaul the market. The approach centers on technology adoption and the introduction of long term fixed-price contracts for nuclear power, hydropower and renewable energy sources.
The executive’s proposal has stirred intense reaction within the energy sector. It signals a radical shift away from current rules, creating uncertainty about investment approaches until the reform’s path becomes clearer. The Ministry of Ecological Transformation has circulated its plan without a formal sign-in process and without a public dialogue with the energy industry, leaving questions about the anticipated economic impact unresolved.
Major renewable energy groups warn that the reform could dampen planned investments across the Spanish market in the coming years. The Renewable Energy Companies Association APPA and the Wind Business Association AEE emphasize the need for a stable legal framework that offers clear visibility into investment decisions. Large Spanish energy players such as Endesa, Naturgy, Acciona, Repsol and Cepsa have voiced their concerns and are seeking a framework that aligns with market realities while supporting growth.
Renewable sector bodies point to the potential for substantial investment in Spain, including more than 100 billion euros in renewables, green hydrogen, energy storage and transmission infrastructure. They stress that the realization of these investments hinges on a stable, predictable, and jointly agreed legal framework that bridges public and private interests.
Both green employers highlight that the reform could affect existing renewable facilities and planned projects in the short, medium and long term. They call for a compromise that reflects the needs of different stakeholders and for technical discussions with input from the private sector before the electricity market changes are finalized.
APPA and AEE warn that rapid growth in renewable energy in recent years has been enabled by the current market framework, which the government’s proposal now seeks to recalibrate. The association Aelec, which includes major electricity firms like Iberdrola, Endesa and EDP, also warned that the plan could introduce new uncertainty and impact planned investments across the sector.
The Spanish government has proposed to Brussels a revision of the existing operating rules for European electricity markets. The current marginalist pricing system, which binds the price of electricity to the most expensive technology needed to meet demand, has been pressured by the surge in natural gas prices during the energy crisis and is seen as amplifying price volatility.
In practical terms, Spain would maintain gas and coal-fired plants within the daily and intraday markets, while seeking compensation through capacity payments when demand peaks. Renewable energy, nuclear power and hydroelectric generation would be priced through long term contracts that guarantee predictable returns. The price for renewables would be set through a process similar to current government tenders, while nuclear and hydro prices would be established by the regulator to ensure long term price stability for investors and consumers alike. [Citation: European energy policy context and Spain’s reform proposals]