Spain’s Energy Market Reform Plan and Its Impact on Renewables, Nuclear, and Storage

No time to read?
Get a summary

The ministers convened at the year’s first cabinet meeting in Spain to discuss a proposed reform of the European electricity market. The plan aims to lower consumer energy costs, tame price volatility in the short-term market, and bolster security of supply. Spain’s Ecological Transition Ministry plans to push in Brussels for measures that reduce the current daily market for gas-fired power plants, promote long-term contracts for nuclear and hydro, and, for renewables, favor voluntary participation while creating a new market where storage facilities are paid for being available. “We believe there is enough experience to show what works at the European level and how the model should function,” stated Teresa Ribera, the Third Vice-President and Minister for Ecological Transition, underscoring Spain’s view of its recent energy results. Spain has seen notable energy market shifts in the past months, and, after pressing the European Commission in spring 2021, Brussels initially resisted but eventually agreed to launch reform after more than a year and amid a period of disruption and conflict in a turbulent year.

Renewable energy

Renewables stand as a central objective for Europe’s energy strategy in the coming years, aligned with decarbonization targets for 2050. The plan includes pricing strategies that reduce expenses and integrate renewable energy more deeply into the grid. The Spanish government intends to promote futures-style contracts for this energy, linking the overall electrical system with developers. A mechanism similar to existing renewable tenders is envisioned, where the state would purchase energy from developers at a fixed price over a long horizon, roughly 10 to 12 years. This approach ensures that a large share of energy entering the system carries predictable, fixed pricing.

nuclear and hydraulic

For nuclear and hydropower, attention centers on price stability amid a peak-price environment. The concept mirrors the renewables strategy but would require mandatory, not voluntary, shifts from short-term to long-term contracts. These technologies typically benefit from the higher prices seen in the marginal market, especially when gas is used, yet they do not incur costs tied to running gas-fired plants. Some Spanish producers have indicated that their generation mix may be fully contracted, and the government has described the resulting gains as “benefits,” while noting that these contracts do not fall under the same marginal-market revenues. The government proposes long-term, regulator-specified contracts—arranged with the regulator rather than a private counterparty—within a framework that resembles renewable auctions but would be compulsory. This would necessitate amending the European internal market directive to accommodate the shift from free-market patterns. Hydropower would also gain incentives to decide production timing, potentially increasing output during peak periods and mitigating shortages.

The rest: gas, coal…

The remaining technologies, including gas and coal assets, would continue to operate in the daily markets, while forward contracts between generators and marketers would be established. In Spain, gas-fired plants (such as combined cycles and cogeneration) would be managed under a model where a portion of energy remains priced by the market, while the rest is settled through long-term arrangements ensuring more stable prices (typically spanning a decade).

capacity markets

While preserving a minimal short-term market for gas, the government proposes a parallel long-term market for contracted renewable, nuclear, and hydro energy. Capacity markets would compensate technology providers for being available, rather than for energy produced. Storage-enabled technologies—such as pumped hydro, batteries, and other storage solutions—would receive payments for being ready to produce when needed. These services exist under current European rules, but the proposal seeks to modernize the internal electricity market directive and standardize these offerings, addressing new dynamics like energy storage and other emerging solutions. This approach aligns with a broader push to ensure reliability and flexibility across the system.

What is the government looking for?

The overarching aim is to achieve clearer, more stable prices, with limited spillover effects on other technologies. The expectation is that higher gas or CO2 prices should not disproportionately affect other energy sources. “Prices may not fall immediately, but volatility should decline over time as renewables contribute more to the mix,” Ribera noted. The emphasis is on delivering a market design robust enough to meet future challenges while smoothing out recent months’ stress. The result is a system that is more predictable and prepared for future energy demands, with renewables taking a central role in shaping prices and reliability [Citation: European Commission reports, 2023].

No time to read?
Get a summary
Previous Article

Rewritten Article on Cultural Policy Debates in Russia

Next Article

Parliamentary Allowances and Investments in Arms: A Closer Look