The oil and gas shock caused by the US-Israeli attack on Iran and Tehran’s closure of the Strait of Hormuz has caused the cost of electricity to sharply diverge in Europe, with some countries cushioned while others feel the pain.
On Tuesday, the cost of producing one megawatt-hour (MWh) of energy was €169.15 in Ireland, the highest in Europe. It was €149.04 in Italy, €138.89 in Germany, and €88.23 in France.
In Spain it was €44.35. Since the outbreak of the crisis, Spain has had the cheapest or close to the cheapest prices in the European Union.
This is a new development. Spain was badly affected by the last gas price crisis, in 2022, which was caused by Russia’s invasion of Ukraine.
The difference since then, according to energy analysts and the Spanish government, is the amount of renewable energy now in the Spanish energy system and, crucially, a reduction in dependence on gas.
“It’s not by chance,” Spanish prime minister Pedro Sánchez told reporters recently.
“It’s because there has been a consistent commitment by the Spanish government over the last eight years to be at the forefront of the renewable energy roll-out, therefore protecting our economies, our homes, our industries, our workers and companies from shocks such as this.”
On Tuesday, 65 per cent of Spain’s power came from renewable sources, compared with 43 per cent across 2022.
Just 0.2 per cent of total energy produced in Spain on Tuesday was from gas turbines, according to figures from its energy grid (15 per cent was from nuclear).
By comparison in Ireland, 40 per cent of electricity was generated by renewables in 2024, according to the CSO. Gas generated 41 per cent of electricity in Ireland that year, at times peaking to as high as 83 per cent, according to data from Gas Networks Ireland.
Gas plays a crucial role in setting prices in EU electricity markets. Because it can be switched on and off easily, gas power kicks in to “top up” the available energy during surges in demand.
Under the marginal pricing system of the EU’s electricity market, the most expensive type of energy source sets the price for all electricity sold that hour.
That means energy systems that need to resort to gas frequently – such as Ireland’s – pay scorchingly high prices when the cost of gas surges.
Italy, which has a similar energy mix to Spain but a much heavier reliance on gas, is likewise experiencing some of the highest electricity costs in Europe, putting the government of Giorgia Meloni under pressure.
Yet Spain appears to have reached a tipping point where it has enough consistent supply elsewhere that it needs to resort to gas much less often, according to analysts.
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“Spain were already using a lot of wind and solar back in 2022. But it seems to have crossed a threshold now where it’s providing very high shares of electricity in more and more hours of the day,” said Chris Rosslowe, a senior analyst at energy think tank Ember.
“It’s pushing gas off the system almost entirely, at least in the main electricity market, which is then lowering prices.”
The breakneck pace of renewable energy development in Spain has not been entirely without teething problems. The widespread blackout experienced across the Iberian Peninsula last year had several different causes, but one was that investments in the energy grid had not kept pace with the rapid change, according to Rosslowe.
Bear in mind that wholesale energy prices are not the same as household energy bills. The ultimate bills paid by the consumer are affected by network pricing, and government taxes or subsidies.
There is sometimes a delay before high wholesale energy prices hit consumer bills, meaning some of the highest prices may be yet to come.
Needless to say, if the underlying energy is cheaper to produce, bills should be cheaper too.