The electricity market last year faced record prices and extreme volatility driven by broader economic impacts, including the Russian invasion of Ukraine. For months, there were sharp surges and prices that many never expected, with daily peaks surpassing 500 euros per megawatt hour (MWh) on the market.
After a period of rapid price spikes, prices have begun to stabilize. A decline in natural gas costs, tighter demand controls, and targeted government measures to ease the burden on households and businesses helped curb the volatility during the crisis’s worst moments. Today, electricity prices hover roughly 60% to 70% below the previous year’s levels.
On some days, price drops become pronounced enough to reach very low levels, even zero euros in the wholesale market where electricity is traded for the next day. Prices differ by hour, and this year there were more hours with zero euro prices than before, reflecting shifts in demand and supply in real time.
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This year, the wholesale market often cited as the pool recorded zero euros in 52 hours, with an additional 29 hours priced at just a few cents under 1 euro. In 2022, zero euro moments were rare—only three hours—and even then they appeared on December 31.
Renewable energy growth and falling prices
The market uses a marginal pricing system. Newer, more expensive generation technologies determine the price for the rest of the mix. Some flexible generation technologies, like renewable energy, nuclear, and hydropower, enter the market at zero price, and when their production meets expected demand, the overall price can stay at zero euros. This was the case for many hours this year.
The combination of lower demand for renewable energy and a bigger share of renewables in the generation mix has made these zero-price events more common. Zero-price hours tend to cluster on weekends and holidays: of the 52 zero-price hours, 35 occurred on Sundays, with two on Saturdays and 15 on national holidays.
“The price in the electricity market depends on the balance between demand and the marginal energy used to meet it. When demand falls and sunny, windy days prevail, prices can drop and even hit zero,” explains Francisco Valverde, advisor at Menta Energia. — OMIE.
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There are also changes in how the market behaves during hours when prices are typically lowest. Traditionally, the cheapest prices appeared at night due to lower activity, but they are increasingly observed during daytime hours as photovoltaic solar output rises and self-consumption expands.
“As photovoltaic generation grows, the price curve shifts. Excess electricity is now tied to daylight hours when sun is strong, while gas plants drive prices higher at night,” notes Juan Antonio Martínez, analyst at Grupo ASE. — OMIE. “Historically, zero prices were mainly from wind power, but now solar is taking the lead,” adds Valverde.
The timing of zero-price hours varies with the seasons. Winter evenings may see price drops due to wind, while summer days see more solar-driven reductions. Antonio Delgado Rigal, CEO of Aleasoft Energy Forecasting, points out that last January’s zero-price hours were mostly early morning, while April and May saw zero prices during central daytime hours when solar radiation peaks.
Industry experts see zero-priced hours as both a signal of market risks and potential barriers to investment in new renewables, particularly if storage capacity or interconnections with neighboring grids are limited. Some degree of cross-border interconnection could help shift production and smooth daily fluctuations.
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Zero euro prices do not translate to free electricity for consumers. The wholesale shift has mainly impacted roughly 9 million customers on a regulated tariff called PVPC, used by smaller users. The overall bill comprises more than just energy; taxes, government levies to fund renewables, non-peninsula charges, and system debts, plus network transmission and distribution tolls, all contribute.
While the energy portion can drop to zero, other components remain. Taxes and temporary relief measures reduce some burdens, but the total bill for many customers includes these additional charges and fees, which continue to apply regardless of wholesale price movements.