Renewables Steady Iberian Power Prices as Gas Shocks Hit the Grid

When natural gas prices exploded across Europe in 2021 and 2023, most electricity markets followed them upward with brutal speed. But on the Iberian Peninsula, something different appears to have happened. A new study of the Spanish and Portuguese day-ahead electricity market suggests that the region’s unusually high share of renewable generation was associated with wholesale prices that absorbed fossil-fuel shocks more gently than they otherwise would have, offering some of the clearest market-level evidence yet that clean power can act as a buffer against energy crises rather than merely a decarbonization tool.

The research, published in the journal Discover Sustainability by Lijing Liu and Elisabeth T. Pereira of the University of Aveiro in Portugal and Hao Wu of Hanyang University in South Korea, examines the Iberian day-ahead market operated by OMIE, the exchange that clears hourly prices for both Spain and Portugal. The authors assembled matched daily samples covering 2019 through 2025, drawing on hourly OMIE price data, cross-border capacity files between the two countries, generation and demand records from the Spanish REData and Portuguese REN systems, and day-ahead natural gas prices from the Iberian gas hub MIBGAS. This combination allowed them to connect three outcomes that energy economists usually study in isolation: the level of wholesale electricity prices, the strength of gas-price pass-through into power prices, and the degree of internal price dispersion between Spain and Portugal within the coupled MIBEL market.

The headline finding is striking in its magnitude. The study reports that renewable generation is negatively associated with day-ahead electricity prices, with a total estimate of −0.987 euros per megawatt-hour for each additional percentage point of renewable penetration. In other words, every extra point of renewable share in the generation mix was linked to roughly one euro per megawatt-hour of downward pressure on wholesale prices. When the authors conditioned their estimate on the level of gas-fired generation in the system, the association remained substantial at −0.699 euros per megawatt-hour per percentage point, indicating that the price-dampening effect of renewables is not simply an artifact of gas plants being pushed out of the market at particular moments.

Technically, this relationship reflects the mechanics of merit-order dispatch in a coupled electricity market. In the day-ahead auction, generators are ranked by marginal cost, and the price is set by the most expensive unit needed to meet demand. Wind and solar plants have near-zero marginal cost because their fuel is free, so as renewable penetration rises, the marginal unit that sets the price is increasingly likely to be a cheaper technology rather than a gas-fired plant whose bid must recover the cost of expensive natural gas. The result is that fossil-fuel price shocks are transmitted into consumer electricity prices with less force, a phenomenon the researchers describe as weaker within-month gas-price pass-through.

That pass-through result is quantified through an interaction term between renewable penetration and gas prices, estimated at −0.438. A negative interaction of this kind means that as renewables occupy a larger share of the generation mix, the slope linking gas prices to electricity prices flattens: each euro of gas-price movement translates into fewer cents of electricity-price movement. For households and industries that lived through the European energy crisis, this is the statistical signature of a market that was partially insulated from the worst of the shock. It is also, the authors stress, a conditional association measured under specific market and policy conditions, not a proven causal effect.

One of the most intriguing parts of the analysis is a four-period check that traces how the renewable-gas interaction changed across distinct phases of the crisis. Before the introduction of the so-called Iberian Exception, the interaction was negative, consistent with renewables already damping pass-through. During the formal policy window of the Iberian Exception, the mechanism that capped the gas price used in electricity production and decoupled Iberian power prices from the European gas market, the interaction turned positive. After 2023, once the exceptional regime wound down, the interaction returned to negative territory. The authors are careful to note that these estimates describe temporal heterogeneity in the data rather than a causal policy effect, but the pattern suggests that the Iberian Exception temporarily altered the structural relationship between gas and electricity prices before the underlying renewable-driven dynamic reasserted itself.

The study also speaks to a long-running debate about market integration within the Iberian Peninsula. Spain and Portugal operate under market coupling, a design intended to harmonize prices across borders by using available interconnection capacity to arbitrage differences between national markets. Yet the two countries have historically been weakly interconnected relative to the rest of Europe, raising questions about whether the coupled market delivers genuinely integrated pricing. The researchers find that internal Spain-Portugal commercial transmission capacity is associated with narrower hourly absolute price spreads, with an estimate of −2.924 euros per megawatt-hour for each additional gigawatt of capacity. Every extra gigawatt of commercial interconnection was linked to a reduction of nearly three euros per megawatt-hour in the average hourly gap between Spanish and Portuguese prices, evidence that physical interconnection capacity is a binding constraint on price convergence.

Why does this matter beyond the Iberian Peninsula? The region is a natural laboratory for the energy transition because it combines some of the highest renewable penetration rates in the world, driven by decades of investment in wind, solar and hydropower, with a single coupled electricity market and a shared exposure to the 2021-2023 gas-price shock. If renewables were merely adding volatility or failing to discipline prices, that would show up here first. Instead, the data point in the opposite direction: higher renewable shares were associated with lower price levels, weaker transmission of gas-price shocks, and, alongside greater interconnection, tighter price convergence between the two national markets. For policymakers designing the next phase of decarbonization, the findings suggest that the economic case for renewables extends well beyond emissions accounting and into the resilience of consumer-facing prices.

The authors frame their contribution as a corrective to the way sustainable electricity transitions are usually assessed. Evaluations tend to focus on emissions reductions and generation shares, treating the social and economic viability of the transition as a secondary concern. But whether a power market can absorb fossil-fuel price shocks without passing them on in full is central to public acceptance of the transition, particularly after a crisis that saw European electricity bills soar and governments scramble for emergency interventions. By linking price levels, pass-through and dispersion in a single empirical framework, the study offers a template for measuring the price-resilience benefits of renewable electricity in other regional markets, from the Nordic countries to the expanding coupled zones of central Europe.

There are, of course, important limits to what the study can claim. The estimates identify conditional associations under specific market and policy conditions, and the authors explicitly caution against reading them as causal effects. Unobserved factors, from weather-driven demand swings to fuel substitutions and regulatory changes, could influence both renewable penetration and price outcomes. The Iberian Exception itself complicates any simple narrative, since the policy window visibly reshaped the gas-electricity price relationship. Still, the consistency of the negative renewable-price association across specifications, and its reappearance after the exceptional regime ended, lends weight to the central conclusion: in the Iberian market, renewable electricity has been associated with wholesale prices that are lower, less exposed to gas shocks, and, where interconnection allows, more uniform across borders. As Europe pushes toward higher renewable targets, the Iberian experience suggests that the payoff may arrive not only in avoided emissions but in the quiet resilience of the price signal itself.

Subject of Research: The association between renewable electricity penetration and wholesale price resilience in the Iberian power market

Article Title: Renewable electricity is associated with wholesale price resilience in sustainable Iberian power markets

Article References: Renewable electricity is associated with wholesale price resilience in sustainable Iberian power markets. (n.d.). https://doi.org/10.1007/s43621-026-04754-w

Image Credits: AI Generated

DOI: 10.1007/s43621-026-04754-w

Keywords: renewable electricity, wholesale electricity prices, Iberian power market, MIBEL, gas-price pass-through, market coupling, Iberian Exception, price resilience, energy transition, Spain, Portugal, day-ahead market