How the Spanish electricity market works

How is the electricity market organised in Spain?

Finding out how the Spanish electricity market works helps us to better understand our electricity bill and how its price is determined, as well as to distinguish between the free and regulated markets so that we can choose which supplier is best for us.

High-voltage transmission tower and electrical substation connected to the power transmission grid.

The Spanish electricity market is undergoing an energy transition in which renewable energy sources are becoming increasingly important.

The electricity market in Spain is organised around the electricity system – the different infrastructure that makes up the electricity network, along with private and public entities involved in the generation, operation, transmission and distribution of electricity to our homes and businesses.

In this article we explain how the electricity market in Spain works, how prices are determined and the role played by each key player. We also analyse the challenges facing the Spanish electricity market against a backdrop of increasing electrification, in which renewables are playing an increasingly prominent role in the national energy mix.

General structure of the Spanish electricity market: stakeholders and functions

Since Law 54/1997 on the Electricity Sector came into force in Spain in the late 1990s, the electricity market in Spain has been liberalised, although the State intervenes at various stages from the generation of electricity through to its delivery to the end user.

Until 1997 the public administration played a leading role in the management of the electricity system, determining the electricity generation mix, the investments to be made and the operation of generation plants, covering all the costs of private companies operating within it and setting the price of electricity. Currently, Act 24/2013 of 26 December 2013 regulates the structure and operation of the sector, and distinguishes between regulated and non-regulated activities.

As well as setting the scene within the current historical context, to understand how the Spanish electricity market works we must first bear in mind a fundamental premise: electricity generation must always equal demand.

Secondly, we need to identify the key players involved in the processes of generation, transmission, distribution, energy recharging services and supply, as well as in the financial and technical management of the electricity system.

Below we list them and describe their functions:

Electricity producers

Organisations responsible for generating electricity from renewable sources (such as solar, hydro or wind) or non-renewable sources (coal, oil or gas), as well as for constructing, operating and maintaining production facilities. They sell the electricity they generate on the wholesale market and derive their revenue from the price of electricity.

System operator

Red Eléctrica de España (REE) is the body responsible for managing the public service of the unified operation of the national electricity system via the high-voltage grid. It coordinates the transmission of electricity via the high-voltage networks and is responsible for ensuring the continuity of the electricity supply to all consumers 24 hours a day, every day of the year, whenever they need it, as well as for maintaining the balance between supply and demand at all times. The Electricity Control Centre (Cecoel) produces forecasts of the following day's electricity demand across the country. Based on this information and the results of the electricity markets, REE establishes and adjusts generation schedules for the various scheduling periods.

Market operator

The Iberian Energy Market Operator (OMIE) is the body responsible for managing the daily electricity market on the Iberian Peninsula (Spain and Portugal). OMIE's main function is to manage the matching of electricity buying and selling bids on the daily market, which determines the energy prices for each trading period. It also ensures that energy trading transactions take place in accordance with the market's operating rules.

Distribution companies

These are the companies responsible for distributing electricity from substations to consumers. They are also responsible for constructing, maintaining and operating distribution infrastructure and ensuring the quality of supply, as well as for metering at supply points, such as domestic electricity meters. The Ministry for Ecological Transition and the Demographic Challenge regulates their activities. For example, i-DE Smart Grids is Iberdrola España's electricity distributor. Regulation prohibits distribution companies from selling electricity to end consumers and they may purchase electricity on the market only for their own facilities' use.

Suppliers

These are the companies that access the transmission or distribution networks to purchase electricity with the aim of selling it to consumers and other players in the electricity system or carrying out international trading operations in accordance with the terms set out in the current laws covering the sector.

These organisations offer a range of tariffs and services, manage electricity bills, provide advice and answer customers' queries. Suppliers are divided into those operating in the regulated market (where the price of electricity is set by the government, known as the "Voluntary Price for Small Consumers"), and those operating in the free market (which are free to set their own tariffs, subject to supervision by the National Markets and Competition Commission, CNMC). In both cases, they purchase electricity on the wholesale market.

For example: Iberdrola Clientes, a company belonging to Iberdrola España, is one of the leading electricity suppliers in the Spanish electricity sector within the free market and offers different electricity plans for households, businesses and residents' associations. In the regulated market, Iberdrola España operates through the supplier Curenergía.

Regulator

The National Markets and Competition Commission (CNMC) oversees the functioning and level of competition in the electricity market, both wholesale and retail, as well as certain aspects of the system's operation.

Consumers

Individuals or legal entities who purchase electricity for consumption in their homes, for recharging their vehicles or for their businesses or industries. They have the option to choose a supplier in either the free or regulated market, depending on their needs and consumption patterns.

How supply and demand are organised in the electricity market: the wholesale and retail markets

To understand how the electricity market in Spain works in terms of energy supply and demand and the price of electricity paid by end consumers, we begin by distinguishing between two types of market: the wholesale market and the retail market.

In the wholesale electricity market, it is the electricity generators who sell electricity to the suppliers whilst in the retail market it is the suppliers who sell electricity to consumers.

How does the wholesale market work and who sets the price of electricity?

The Spanish wholesale market, together with the Portuguese market, forms part of the Iberian Electricity Market (MIBEL). Within this framework there are various markets and trading mechanisms, ranging from forward transactions to the day-ahead market, where electricity to be delivered the following day is traded.

The daily wholesale electricity market, known as the “electricity pool”, aims to carry out electricity transactions for the following day through the submission of buying and selling offers by the different market participants. The deadline for submitting offers to the daily market is 12:00 CET, and, since October 2025, trading has been carried out in 15-minute intervals, resulting in 96 quarter-hourly prices for the electricity to be delivered the following day.

What is the process for setting the price of electricity in each trading period?

Generators and suppliers submit their bids to buy and sell electricity for the various periods of the following day via OMIE.
OMIE is the body responsible for managing the day-ahead market and, using the Euphemia matching algorithm, obtains a matching price per megawatt-hour (MWh) for each trading period of the following day.
Once the offers to sell electricity have been submitted, the algorithm ranks them according to price to meet the demand for each trading period. Put simply, the lowest-priced offers are matched first and higher-priced offers are gradually added until demand is met. This determines the electricity supply curve for each 15-minute interval.
The energy purchase bids from the suppliers are ranked in descending order (from the most expensive to the cheapest), forming the electricity demand curve.

Demand for electricity fluctuates throughout the day and its trends influence the operation of the electrical network. This requires thorough planning by Red Eléctrica de España, which takes into account, among other factors, weather forecasts and consumption patterns (sporting events, high-viewership television programmes, etc.).
The intersection of the supply and demand curves determines the market price of electricity, or marginal price, for each 15-minute interval. This price is set at the point where the accepted supply and demand bids intersect, so that the total amount of energy purchased equals the total amount of energy sold.
The results of the matching process are forwarded to the System Operator (Red Eléctrica de España) for validation from the point of view of technical feasibility. This process ensures that the market results are technically feasible within the transmission network. For this reason, the daily market results may fluctuate slightly as a result of the analysis of technical constraints carried out by REE.
The prices resulting from the daily market can be viewed on the OMIE website.
As this is a single-price auction, all market participants – whether electricity generators or suppliers – pay the same price for electricity sold on the day-ahead market. However, price adjustments resulting from the System Operator's resolution of technical grid constraints are passed on to all consumers but are only remunerated to the facilities participating in these services.

Free market and regulated market

End users of electricity do not deal directly with the wholesale electricity market (with a few exceptions); instead, they access electricity via the retail market, where they deal with electricity suppliers. They can choose to purchase it on two types of market: the free market and the regulated market.

Regulated market

This includes customers (individuals or micro-enterprises) who have opted into the Voluntary Price for Small Consumers (PVPC), established by the public administration on 1 April 2014 – previously known as the Tariff of Last Resort (TUR). The PVPC is a dynamic price with a regulated calculation methodology, and which incorporates developments in the daily wholesale electricity market, together with other regulated components and costs associated with supply. From 1 January 2024, its formula has also incorporated references to the forward markets (electricity price benchmarks for 1, 3 or 12 months ahead) with the aim of reducing its volatility.

Eligibility for the PVPC is open to holders of supply points with voltages not exceeding one kilovolt (kV) and with a contracted power of 10 kilowatts or fewer in each of the existing time bands. Meanwhile, micro-enterprises are defined as those with up to 10 employees and an annual turnover not exceeding €2 million.

As this is a dynamic price, the cost of energy under the PVPC may vary throughout the day.

In this market customers bear the risk of constant price fluctuations, but in return consumers can therefore adapt their consumption habits and, where possible, shift certain consumption to periods when prices are lower.

Free market

Any consumer has the right to arrange an electricity supply contract for their home, business or industry on the free electricity market and to negotiate the terms of service. Unlike the regulated market, on the free market, suppliers can offer different contract types and prices, with terms tailored to different consumer profiles and consumption patterns.

Suppliers, having previously purchased electricity on the daily wholesale market from generation companies, bear the risk of constant fluctuations in electricity prices and compete with one another by offering different types of contracts and terms, tailored to each customer's consumption patterns.

Furthermore customers have access to a continuous customer service and advisory service which enables them not only to choose the offer that best suits their needs but also to adjust their consumption patterns in order to benefit from more favourable terms for their electricity supply. Where appropriate they may also choose to opt for fixed electricity prices to avoid exposure to market risk.

Iberdrola España is one of the leading electricity suppliers in the Spanish electricity sector and offers various types of electricity plans for households, businesses and residents' associations, amongst other customers.

Challenges facing the Spanish electricity market: the transition to renewable energy and the future of the system

The fight against climate change is one of the great challenges of the 21st century, and the energy sector plays a key role in mitigating the effects of global warming. To achieve this, the European Union has set the target of achieving carbon neutrality by 2050, and Spain is following this path with the aim of decarbonising its energy model by the same date.

In Spain, the electrification of the economy is becoming increasingly important as part of efforts to move towards this goal, reduce greenhouse gas emissions and gradually replace the use of fossil fuels with renewable energy sources.

The Spanish electricity market is undergoing an energy transition in which these green or clean energy sources, such as wind and solar power, are becoming increasingly important, alongside hydroelectric power – a source of electricity generation that has played a leading role since the dawn of electricity in Spain.

And the figures bear this out: in 2023, renewable energy sources exceeded 50% of the national energy mix for the first time, according to data published by Red Eléctrica. By 2025, renewable sources were generating more than 55% of Spain's electricity.

As one of the country's leading energy companies and a leader in renewable energy, at Iberdrola España we continue to contribute and invest to ensure that the future of the Spanish electricity system becomes increasingly sustainable and competitive.