Projected Decline in Electricity Prices by 2026 and Its Implications for Renewable Energy and System Stability

The wholesale electricity market in Spain, known as the pool, is expected to experience a significant decrease of around 16 percent in 2026, reducing the average price to approximately 55 euros per megawatt hour (MWh).

In 2025, the pool closed at an average of 65.52 euros/MWh, marking a 4.2 percent increase compared to the previous year. Analysts from ASE highlight that abundant renewable energy overcapacity, stable gas prices, and subdued demand growth will continue exerting downward pressure on electricity prices in the coming years.

Using futures market data, estimates place the 2026 average electricity price at around 54.55 euros/MWh under normal climate conditions with gas at 27 euros/MWh and CO2 emission allowances at 86 euros per tonne. The projected price range varies from approximately 48.51 euros/MWh in a pessimistic scenario to 62.34 euros/MWh in an optimistic one.

Spains electricity prices remained more competitive within the European Union in 2025, with only France offering a lower average at 60.72 euros/MWh. The country experienced marginal annual price increases of 4.16 percent, notably less than Germanys 14.56 percent rise, where prices reached 89.53 euros/MWh.

In December, the national average was 77.91 euros/MWh, up 32.84 percent from the previous month, but still 30 percent lower than December last year, which saw prices at 111.24 euros/MWh. The increase reflects higher gas prices and emission costs, particularly affecting peak demand hours where prices surged by 12.56 percent to 100.57 euros/MWh between 8 pm and midnight.

The growth of photovoltaic production in 2025, which rose by 12.5 percent, led to a 28.43 percent drop in midday electricity prices (10 am to 4 pm), reducing them to 33.02 euros/MWh. Conversely, evening peak prices climbed sharply due to increased gas and emission costs, highlighting the impact of fuel costs on market pricing.

Electricity generation in Spain increased by 3.6 percent in 2025, with gas combined-cycle plants (CCGs) playing a crucial role in system stability following a major blackout on April 28. Despite record-breaking renewable installations totaling 9,408 MW, their contribution to the overall energy mix slightly declined from 40.3 percent in 2024 to 40.0 percent in 2025, driven by policies prioritizing grid stability.

The continued focus on system resilience led to increased utilization of CCGs, which rose by 27.8 percent in 2025, and tighter restrictions on non-manageable renewables such as wind and solar. Analysts anticipate that renewable generation, especially wind and solar, will rise again in 2026, supported by stable hydro output, with prices expected to stabilize mainly in the first quarter amid high solar output and lower gas prices.

System operator Red Electrica de Espana is expected to sustain high levels of gas CCGs to ensure grid stability, influencing the projection that adjustment and balancing costs will remain around 17 euros/MWh throughout 2026, reflecting ongoing system management efforts.