ICIS Power Perspective: High power prices despite increased hydro on the Iberian Peninsula

Author: ICIS Editorial


This story has originally been published for ICIS Power Perspective subscribers on 28 August 2018 at 14:35 CET.

From May to July, power prices in Portugal and Spain were around 20% higher than last year. This occurred despite increased hydro power production compared to 2017's drought. Having no "apparent explanation" for that situation, the Portuguese and Spanish government form a common working group that looks into the price development- changes to the market regulation by the governments are possible.

Main points

  • Portugal's and Spain's power markets are linked in the Iberian Electricity Market (MIBEL)
  • Theoretically, with a similar demand, fuel spreads, power generation fleet, crossborder exchanges but increased hydro generation, the merit order shifts to the right and thus the marginal and therefore price setting power plant would be a lower cost one, reducing power prices
  • The Spanish and Portuguese governments believe imperfections in the market rather than the behaviour from market participants is a reason for unexplained higher power prices (source)


  • The following fundamental analysis looks at different influencing factors of the power prices in Portugal and Spain in order to gain insights on possible reasons and peculiarities
  • As the relative high prices were in particular visible from May to July 2018, the same timeframe in 2017 is compared

Power generation and prices

  • Demand in both Portugal and Spain slightly decreased by -1% and -3% respectively (see Graph 1 for Portugal Graph 2 for Spain)
  • Portugal's hydro power production almost doubled
  • During that same period, coal and gas production in Portugal decreased by -12% and -25%
  • As for Spain, hydro generation increased by over +50% while coal decreased by -45% and gas by -12%
  • Spanish nuclear production decreased by 6% due to outages and maintenance potentially leading to increased power imports from France

Graph 1: Portugal - Power generation and power prices

Graph 2: Spain - Power generation and power prices


  • May to July, the Portuguese and Spanish Clean Spark Spread (CSS) was around €3/MWh higher than the Clean Dark Spread (CDS), but the Portuguese gas production did not increase as expected and seen in summer 2017 (see Graph 3)
  • A main driver for the spread development is the increased EUA price that affects coal production more than gas production
  • In contrast to the Spanish power market, the Portuguese power market is mostly not hedged long before delivery, thus the changing fuel spreads should directly influence the fuel usage
  • As there have been no news on gas plant outages, a reason for lower than expected gas generation could be that coal imports in 2018 were on a high level in expectation of another dry summer like in 2017 and the coal has been not stored but monetarised in power production

Graph 3 - PT spreads and power generation

Cross-border exchange with France

  • Spain's power imports from France was flat in May, increased by 10% in June and 25% in July year on year
  • The higher imports in combination with risen French power prices can be one reason for the price increases in the linked MIBEL market particularly for June and July, but not significantly for May


  • The fundamental analysis does not fully uncover the causes behind higher prices:
    • The high increases in hydro power generation are not reflected in lower power prices, contrary to the merit order price-setting theory
    • Gas power production in Portugal and Spain did not seem to respond to widening fuel spreads
    • The 2017 drought may have significantly decreased forecasts of hydro power for 2018, which led to higher planned imports of coal, leading to high coal generation this year
    • Due to the geographical location and the high imports of Spain from France, the whole Iberian peninsula is highly dependent on price developments in France

Simone Lischker is Analyst - EU Carbon & Power Markets at ICIS. She can be reached at Simone.Lischker@icis.com

Dalila Ouerghi is Market Reporter at ICIS. She can be reached at Dalila.Ouerghil@icis.com

Interested in seeing what impact this and other developments could have on the power price? ICIS is launching Power Horizon, a pan European Power price forecast on 17 September. Register now for a free trial right after release by writing Justin Banrey (Justin.Banrey@icis.com).