Cutting the link between gas and power prices

The case of Spain and Germany

How do averages and fluctuations in electricity prices relate to each other when the link between gas and power prices starts to weaken?

As renewable energy expands and the traditional gas–power link erodes, new patterns emerge in price dynamics — revealing how flexibility, or the lack of it, shapes volatility. I’ve been studying this through electric grid simulations with heterogeneous agents — electricity bill owners, PV chargers, and other kinds of actors — that interact through the grid. This work includes the analysis of electricity price data, as shown in my previous posts (on extreme event statistics and testing predictions with machine learning).

Following the dynamics of electricity prices in various parts of the world, especially in Europe, I’d like to share some insights on how electricity prices can become decoupled from gas prices, focusing on Spain and Germany.

The lower, light grey lines on the main figures represent the power price, while the higher, dark grey lines stand for the cost of generating electricity with gas, both in euros per MWh. Their difference is shown by the green shaded area. On the right-hand side, we can see the data from Germany. This is a typical figure in Europe: when gas was expensive, even well before the war escalated in Ukraine, power prices were skyrocketing in a similar way.

However, the case of Spain, shown on the left, is atypical, since power prices are lower than the EU average and more decoupled from gas prices due to the sharp rise in wind and solar generation.

“In the first half of 2019, Spain’s power prices reflected the cost of fossil generation in 75% of hours - this dropped to just 19% in the same period in 2025. Spain’s average hourly electricity price in the first half of 2025 (62 €/MWh) was below the cost of generating electricity with gas, which averaged 111 €/MWh during the same period”.

Spain is Europe’s fourth-largest power market, yet it only has the thirteenth-largest battery storage fleet. More batteries and better interconnection could reduce fluctuations and stabilize grid frequency — something batteries are particularly efficient at doing.

A certain type of decoupling is also visible in the German power price data. This is shown in the inset figure. In the day-ahead electricity market, power for each hour of the next day (24 hours) is traded separately. So, for every day, there are 24 hourly prices (one per hour). The Day-Ahead Average Price for a given day is simply the mean of those 24 hourly prices, and the cyan curves show its 30-day rolling window. For the same 24 hourly prices each day, you can look at the maximum and minimum. Then the High–Low Spread is their difference, which is shown by the yellowish curve.

What one can see is that these two curves were moving together for a long period, but recently they have decoupled.

As I understand it, when gas dominates electricity pricing, the Day-Ahead Average Price and the High–Low Spread tend to move together, since both are primarily driven by fluctuations in the underlying fuel cost and scarcity margins linked to thermal generation.

As the system becomes less gas-dominated — for example, when renewables cover a larger share of demand — but flexibility (batteries, demand response, interconnectors, hydro) remains limited or underused, a decoupling between average price and spread emerges.

However, with better storage and flexibility (batteries, hydro, smart demand), even a fully gas-free system could see Avg and Spread move together again (in a much lower price regime), because flexibility would effectively flatten price swings, aligning volatility and average levels.

It’s quite fascinating to see how fast these changes are unfolding — we are truly in the middle of the transition.

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