The trend in electricity prices observed this summer, with Spain paying higher prices than its European counterparts, will reverse in the coming months. Currently, the Iberian market (Spain and Portugal) pays around 116 euros per MW/h, compared to 106 in Germany, 88 in the United Kingdom, 95 in France or 105 in the Benelux. Only Italy currently pays higher prices, at 136 euros per MW/h. This trend has continued for almost the entire summer and breaks with the normality observed in recent years, after the price crisis of 2021. Since then, until this summer, Spain has enjoyed higher and cheaper electricity prices than the rest of the European countries. However, the same forces that pushed the Iberian market to pay higher prices this summer are those that will cause a reversal of the situation in the last months of the year. Analysts suggest that Spanish and Portuguese consumers will again pay the lowest prices in the region in the last quarter of this year.
At the beginning of the year, Spain could boast of being the country in the European Union with the cheapest electricity. After several years of price tensions in the market, the Old Continent has managed to return to prices more in line with the normality of past years. Between 2019 and 2021, Spain maintained an average electricity price of 39.3 euros per MW/h, a rate similar to that paid in other European countries, such as Germany. In the worst moments of the crisis, between 2021 and 2023, Spain paid a lower price than the rest, with an average of 160 euros per MW/h, compared to more than 200 in the first European economy.
Subsequently, at the beginning of 2024, Spain benefited from the lowest energy prices in the entire Union. “Electricity prices have stabilized this year in Europe, at average levels between 40 and 70 euros, far from the high and volatile prices of 2023 and 2022. In February, Spain managed to reach the lowest prices ever reached in three years in the European Union, at 40 euros per MW/h”, they explain from BBVA Research.
The declines in recent years are explained by “market fundamentals, such as lower gas prices, moderate demand and an increase in the production of renewable and hydroelectric energy,” the bank’s experts confirm. However, The arrival of summer in Europe, with the associated increase in electricity consumption, has ended up generating a rise in prices that has led Spain to overtake the rest of the countries of the Old Continent during the month of June. “The reasons for the increase were the increase in demand in the second half of the month due to rising temperatures, the decrease in wind power production and the instability of solar energy during the month, in addition to fluctuations in electricity prices and CO2 emissions,” says GMK Center, a Ukrainian consultancy focused on European markets.
This change in the fundamentals that determine electricity prices in the Old Continent has led Spain to pay higher prices than the rest of its neighboring countries, with the exception of Italy. Currently, Spanish consumers pay 116 euros per MW/h, compared to 79 euros in Germany, 68 euros in France, 66 euros in the United Kingdom or 73 in the Benelux.
Spain will once again pay less than the others
The trend observed in recent weeks, where prices are higher in Spain than in the rest of the continent, will reverse this quarter, if analysts’ expectations are met. The 116 euros that are paid at the moment will become 79 euros over the quarter, a decrease of 31% in the coming monthsand will continue to fall next year until stabilizing around 55 euros per MW/h.
This downward trend expected in Spain will not occur in the rest of European countries. With the exception of Italy, both in Germany and in the United Kingdom, France and Benelux, prices will increase in the coming months. The same fundamentals that have worked in favor of these countries in recent months are responsible for the fact that electricity will become more expensive in these regions, with increases that will also continue next year, according to analysts.
“In Spain, the dynamics are similar to those in the rest of Europe, with gas prices having a significant impact on electricity market prices,” explains BBVA Research. “However,” the bank’s experts continue, “Spain has a unique advantage in renewable energy technologies, partly due to its favorable geographical location,” they confirm. As early as the first quarter of this year, the experts explained how “Electricity futures suggest prices will remain at stable levels over the next few years”but they warn that “it is necessary that there is a stable regulatory framework to guarantee predictability and confidence,” they explain.
