For much of the past two decades, electricity markets across Southern Europe operated under a relatively stable economic logic. Natural gas generation frequently set the marginal price, meaning that wholesale electricity prices were closely linked to gas market dynamics.
Combined-cycle gas turbines became the dominant marginal technology because they were relatively efficient, flexible and capable of ramping output quickly in response to changes in demand. As coal generation declined and environmental regulations tightened, gas plants increasingly filled the role of balancing electricity supply and demand.
In markets such as Spain, Italy and Greece, this resulted in a clear relationship between gas prices and electricity prices. When gas prices rose, electricity prices tended to follow. When gas prices fell, wholesale electricity prices usually declined as well.
However, this long-standing relationship is now under increasing pressure.
The rapid expansion of renewable energy across Europe is fundamentally altering the number of hours during which gas plants operate. Wind and solar generation are increasingly capable of covering a large share of electricity demand during favourable weather conditions.
When renewable output rises, gas plants are pushed further down the dispatch order. In extreme cases they may not operate at all for extended periods.
Recent market data illustrates this trend clearly. At the beginning of 2026, Spain experienced a significant increase in renewable electricity production driven by strong wind conditions and higher hydro availability. The surge in renewable output reduced the need for gas-fired electricity generation, which fell by approximately 2.4% compared with the same period in the previous year.
Although a reduction of a few percentage points may appear modest, it represents an important signal for electricity markets. The more frequently renewables displace gas generation, the fewer hours gas plants remain responsible for setting electricity prices.
This process gradually erodes the traditional gas-power marginality relationship.
When gas plants operate fewer hours, electricity prices become less dependent on gas prices and more influenced by renewable availability. In other words, the market begins to decouple from fuel costs.
This decoupling is particularly visible during periods of strong wind generation. When wind output surges, renewable electricity can meet a large portion of demand. In such situations gas plants are pushed out of the dispatch stack and electricity prices fall toward the marginal cost of renewable generation.
Because wind and solar have very low operating costs, electricity prices during high renewable periods can decline dramatically.
However, the story does not end there. When renewable output falls, gas plants still play an important role in maintaining grid balance. During these periods electricity prices may rise quickly because dispatchable generation becomes necessary again.
This creates a new form of market volatility. Instead of prices moving gradually with fuel costs, electricity markets increasingly experience sharp fluctuations driven by renewable variability.
For gas plant operators, this shift has significant financial implications. Historically, combined-cycle plants could operate for thousands of hours each year, generating steady revenue through electricity sales.
Today, however, utilisation rates are declining in many markets. Gas plants may operate fewer hours but must still remain available to provide flexibility when renewable generation drops.
This changing operating model requires new forms of market compensation. Capacity markets and ancillary service payments are increasingly used to ensure that dispatchable generation remains financially viable.
For power traders, the decline of gas marginality changes the way electricity prices are forecast. Traditional models based primarily on fuel price correlations are becoming less reliable.
Instead, traders must integrate renewable production forecasts, weather models and grid constraints into their analysis.
Forward electricity markets are also adjusting to this new reality. Long-term power price expectations increasingly depend on renewable capacity growth rather than fuel market projections.
At the same time, the role of natural gas in electricity systems is not disappearing entirely. Gas plants remain essential for maintaining grid reliability during periods of low renewable production.
However, their function is evolving. Rather than acting as baseload generators, gas plants are becoming providers of flexibility and balancing capacity.
This shift represents one of the most important structural transformations currently underway in European electricity markets.
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