The volatility has returned with force to the European electricity market. In recent weeks, consumers and businesses have once again observed sharp movements in electricity prices, fueling concern about the impact this situation may have on household economies and business competitiveness.
However, it is advisable to start conveying a message of calm: Spain maintains a solid, diversified electricity system with sufficient capacity to guarantee supply. The current situation does not respond to a shortage of supply, but to an international environment marked by high geopolitical and financial uncertainty that is once again straining European energy markets.
How the price of electricity is formed
The European electricity market is based on a marginalist system. This means that all generation technologies charge the price offered by the last plant necessary to cover demand at each hour.
In practice, although Spain has a growing renewable production, natural gas remains decisive in the formation of electricity prices at the European level. When prices in gas markets rise, the impact ultimately transfers to the wholesale electricity market and, subsequently, to the energy bill.
This mechanism explains why even on days with high renewable generation, significant spikes in the price of electricity can occur. The consumer perceives a single final figure, but behind it coexist multiple components: the cost of electricity production in the wholesale market, the charges for using the electrical grid, system charges, supply to non-peninsular territories, tariff deficit, or the cost of demand interruptibility. In addition to all this, there is the item allocated to guarantee the technical stability of the grid (adjustment services) and taxes (VAT and Special Electricity Tax).
The conflict in Iran and its impact on Europe
The escalation of the conflict in Iran has once again placed the Middle East at the center of international energy markets. Although Spain has a diversified position in terms of gas supply, Europe remains very sensitive to any threat affecting international gas and oil trade.
The markets react immediately to any geopolitical risk that may alter international energy routes or compromise the stability of global supply. It is not just about physical interruptions of supply. The uncertainty itself triggers the volatility of futures markets, increases the cost of financial hedges, and greatly complicates cost forecasting for marketers, industries, and consumers.
The result is a much more uncertain energy environment, where price variations increasingly respond to geopolitical and international financial factors and less to the fundamental factors that determine supply and demand.
The adjustment services
Beyond the wholesale market, there is another less known component for the average consumer: the adjustment services. These markets, which operate after the daily fixing of the wholesale price, are essential to guarantee electricity supply by ensuring an instant balance between generation and consumption.
Historically, these markets represented a residual technical cost. Comprised of technical restrictions, the secondary band, or tertiary regulation, their total cost has increased inversely proportional to the share of renewable generation.
The power outage that occurred on April 28 marked a before and after, becoming a structural cost. The costs of technical restrictions —the largest item within the adjustment services— have grown by 63% in just one year, closing 2025 at 3.812 billion euros compared to 2.523 billion from the previous year according to official data from Red Eléctrica. According to information from the operation services cost observatory, in what we have of 2026, we have already reached 3.570 billion euros in spending. Thus, the annual expenditure on adjustment services is 21.80 €/MWh comparable to the total amount of transport and distribution tolls paid by the final consumer (20-25 €/MWh).
For marketers and large industrial consumers, this reality introduces a first-order operational difficulty. An increasing part of the final supply cost materializes in the adjustment markets, with no possibility of coverage through financial instruments. The result is an unmanageable cost structure where the price has already been negotiated and committed to the final customer.
The reinforced operation and the problem of unpredictability
Special concern is generated by the economic impact of the so-called reinforced operation of the electrical system. The security of supply must always be a priority, and it is logical that the operator adopts extraordinary measures. However, the debate does not revolve around the legitimacy of these actions but rather their predictability and regulatory fit.
The problem with the reinforced operation is that it transfers an additional cost from the system to the final consumer, without the latter having the capacity to modify their behavior or a price signal that allows for anticipation. In the case of a marketer who has closed fixed-price contracts for 12 months, this type of cost introduces a significant distortion, as it forces the assumption of an extra cost that could not be incorporated at the time of setting the price and makes it difficult to offer the customer the stability and predictability that this type of contract precisely seeks.
To this, it is added that, to date, the reinforced operation lacks an explicit regulatory fit, there is no defined time horizon for its conclusion, nor publicly known objective criteria that determine when it will cease to apply. The sector has repeatedly demanded that a regulated price be established for these costs, following the models of other European countries.
The energy transition demands an increasingly flexible and complex electrical system that does not compromise the security of supply. The flexibility of the system must be accompanied by regulatory maturity: transparent rules, economic signals, and supervision mechanisms that allow all market agents to convey certainty to the final consumer. Trust in the energy system is not built solely by guaranteeing that the lights do not go out, but also by ensuring that the cost of keeping them on is understandable and fair.
Regulation, enabling, and demand
The energy transition demands a more flexible and complex electrical system, but this complexity must be accompanied by regulatory maturity. We identify three priority lines of action:
1. Regulated price for adjustment services. Establishing a transparent and predictable compensation mechanism for the costs of adjustment services —following models like the German or French— would allow market agents to manage and cover this risk. The current unpredictability disincentivizes long-term contracting and transfers uncertainty to the end consumer.
2. Unlocking renewable potential for voltage control. By the end of April 2026, the system was only utilizing 13.6 GW of the 63 GW of renewable potential available to provide voltage control service in dynamic mode: less than 22% of the available resource. The proposed modification of PO 7.4 currently being processed by the CNMC points in the right direction, but the speed of enabling new installations remains the bottleneck. As long as this is not accelerated, the system will continue to depend on gas and hydropower to ensure voltage stability.
3. Boosting demand and storage to correct structural oversupply. The excess generation capacity compared to demand is not a problem that resolves itself. It is necessary to eliminate regulatory barriers that hinder industrial electrification, facilitate access for new large consumers (data centers, green hydrogen, electro-intensive industry), promote behind-the-meter storage through tax incentives that allow for the use of the existing self-consumption capacity and that can provide flexibility in an aggregated manner to the system. Without demand to absorb the available generation, the costs of adjustment services will continue to grow.
The consumer does have tools to protect themselves
Despite the current environment of volatility, consumers are not unprotected. There are different contracting modalities that allow adapting the level of market exposure according to the needs of each household or business.
Indexed rates allow benefiting from market drops when they occur, although they also more directly transfer episodes of volatility. In contrast, fixed-price contracts offer greater stability and allow partially isolating the consumer from extraordinary fluctuations like those we are currently witnessing.
Both modalities are valid and serve different functions within the energy market. The important thing is that the consumer has clear information, transparency, and the ability to choose to decide which model best fits their profile and risk tolerance.
The energy transition needs stability
Spain has a historic opportunity to consolidate a more renewable, competitive, and independent energy system from abroad. Electrification and renewable development will allow for a gradual reduction of structural exposure to fossil fuels and international volatility.
But that transformation cannot be built solely on installed capacity objectives. It also requires preserving economic stability and the confidence of consumers and businesses.
The security of the system is essential. But so are regulatory transparency, cost predictability, and the ability to provide certainty in an increasingly complex energy environment. Because electricity cannot permanently become a source of uncertainty for households and businesses.
about the author:
Andrés Gil Blanco is Head of Procurement and Market Risk, Octopus Energy España