Security of supply in the Spanish electricity system in light of recent changes in the energy landscape: Implications for the capacity market

The views expressed in this report are the views of the authors only and do not necessarily represent the views of Compass Lexecon, its management, its subsidiaries, its affiliates, its employees or its clients.

Compass Lexecon supported AELEC, the Spanish association of electricity companies, in assessing whether recent changes in the availability of Spain's nuclear fleet and in gas prices alter the outlook for the security of the country's electricity supply, and what this means for its forthcoming capacity market.

Situation

Most recent European adequacy assessments, including the European Resource Adequacy Assessment 2025 (‘EERA’) published by ENTSO-E in April 2026, conclude that without a capacity market (a mechanism that provides the necessary economic signals to encourage capacity investment), the generation capacity in Spain will not be sufficient to guarantee security of supply over the coming years.

Since the last assessments, two developments have raised the question of whether that conclusion still holds. First, the Spanish Government extended the operation of the Almaraz nuclear plant until June 2030, adding capacity that the European assessment had assumed would close. Second, European gas prices rose sharply.

The Spanish association of electricity companies, AELEC, asked Compass Lexecon to assess whether the changes in nuclear fleet and in the level of gas prices remove the need for a capacity market, and how they affect its expected cost for consumers.

Our role

A Compass Lexecon team built a simulation model of the European electricity market that reproduces the methodology and assumptions of the adequacy assessment by ENTSO-E, and used it to test how each development changes the outlook for Spain.

Based on our analysis, we reached three conclusions:

1. The extension in the operation of Almaraz does not alter the main conclusion of the ERAA, nor does it remove the need for a capacity market;
2. The extension should make the capacity market cheaper rather than more expensive, because the system needs to contract less additional capacity and because it exerts a downward pressure on the auction price;
3. Higher gas prices do not change the picture: markets expect prices to fall back over the relevant period, and even under a deliberately extreme assumption that they remain high, the additional investment this would attract would not close the gap.

Outcome

Our report concludes that neither the Almaraz extension nor the recent increase in gas prices removes Spain's firm capacity deficit, and that a capacity market remains necessary to provide the economic signals required for the investments needed to meet the reliability standard. At the same time, we find that the cost of the capacity mechanism is likely to be lower for consumers than previously estimated.

The Spanish government published the ministerial order approving Spain’s capacity market (order TED/966/2026) on 17 September 2026. The final mechanism remains largely unchanged from the draft proposal and received European Commission State aid clearance in May 2026.

The Team

The Compass Lexecon team doing the modelling work for Spain’s electricity market was led by Antón García, including Albert Riera and Alberto Martín Cedillo.