The energy sector in Spain in 2025: challenges and opportunities

About the authors:

Gonzalo Olivera is the head of the Energy team at Addleshaw Goddard in Spain. A lawyer with more than 20 years of experience, Gonzalo is an expert in regulated sectors. His main area of specialism is energy and infrastructure, advising also on other regulated sectors such as water, environment and public contracts.

Ignacio López is an associate in the Energy team at Addleshaw Goddard in Spain. With broad experience in regulated sectors, Ignacio focuses on energy and infrastructure. He has advised on a number of high-profile energy transactions in sectors like telecommunications, natural resources, public procurement and foreign direct investment.

Key points:

• Spain aims to achieve the total decarbonization of its economy by 2050

• By the end of 2023, renewable energy made up over 50% of Spain’s energy generation mix

• Recent years have seen advances in renewable gasses that will help achieve total decarbonization of the economy

• Spain has introduced measures to address rising energy prices and instability

• Specific legal frameworks are essential to provide investors and developers with legal certainty

• A major black-out on 2025 experienced by Spain and Portugal has made advances its legal framework

Within the framework of the Paris Agreement of 2015 and the European Union’s Green Deal, Spain has been and is currently implementing efforts to secure the total decarbonization of the economy by 2050. As an interim step, the European Commission has established the goal of reducing net greenhouse gas emissions in the continent by at least 55% by 2030, while it aims to obtain 42.5% of its energetic needs from renewable sources by the same date.

With these objectives in mind, Spain has recognized the need to transform its major economic sectors, whilst promoting renewable energy generation technologies and increasing their share in the country's energy mix. Accordingly, on September 24th 2024, Spain approved an update of its Integrated National Energy and Climate Plan 2023-2030 (PNIEC), [SM1] which aims to broadly surpass the European Commission’s renewable energy goals, having set the objective to obtain 81% of its energetic needs from renewable sources by 2030. As a result, in 2024 and in accordance with data of Red Eléctrica de España, S.A.U.(REE), renewable energy in Spain accounted for 56.8% of the total energy mix and 66% of the total generation installed capacity, with solar and wind technology making up 50% of the total generation installed capacity. Nonetheless, during 2024 and 2025 the sector has been facing a number of challenges.

Current context

Stability and predictability are both key factors for the growth of the sector. But despite the Spanish government’s efforts in this direction, the current context presents structural and political challenges that have impacted certainty within the sector.

Famously, on April 28th 2025 Spain and Portugal experienced a major black-out that lasted for several hours. Although the causes of this black-out are to this day not clear, among the different possible reasons, some experts have found the culprit in the unmanageability of renewable energy, bearing in mind its considerable participation in Spain’s energy mix. This could have led the Spanish government to change its stance on certain traditional technology, particularly nuclear and combined cycle plants.

Instead, the Spanish government’s reaction was to provide the sector with manageability through fostering hybridization with battery energy storage systems (BESS), while maintaining its strong bet on renewables These aspects, as well as a number of different measures aimed at strengthening voltage control capacity, increasing operational visibility over various system elements, reinforcing the adjustment service framework, increasing electricity demand and facilitating integration of system flexibility, were passed by means of Royal Decree-Law 7/2025, of 24 on June 24th.

While this law was seen as a reason for optimism among the players in the market, on July 22nd, the Spanish Congress of Deputies repealed it as a result of the current Spanish government’s political instability.

As a result, the Spanish government is working towards other legal tools that would enable some of the measures included in the law to be passed by the end of 2025. In this sense, a draft royal decree has been recently published that includes, among other aspects, the exclusion for certain hybridized BESS from the requirement of obtaining a prior environmental assessment and the administrative simplification for the hybridization of BESS using electrochemistry that do not require an environmental impact assessment. However, the Draft Royal Decree has not yet been definitively approved.

Stability and predictability are both key factors for the growth of the sector

While this is good news to BESS developers focused on hybridization, specific regulation for both stand-alone and hybrid facilities is still under way.

On another note, the higher participation of renewables in Spain’s energy mix has led to a general decrease in wholesale electricity prices, due to the low cost of renewable energy production and renewables cannibalization. In particular, favorable climate for solar production since March has resulted in 404 hours of negative prices in Spain in the first half of 2025.  This downward price trend has resulted in lower-than-expected returns on investment for developers, difficulties in project financing, and a decline in both M&A transactions involving renewable assets and their valuation, with solar energy production being more significantly impacted than wind energy projects.

Such price trends must be analyzed together with renewable energy curtailment. Penetration of renewables in the market has grown disproportionately in relation to electricity grid development (the underdevelopment of which was underlined by the major black-out). As a consequence, curtailment exceeded 5 GW in 81% of the total negative hourly prices, with some forecasts estimating that during the summer of 2025 solar curtailment will amount to 1.5 GW, while this figure raises to 2.4 GW for the 2026 forecast (mainly caused by the insufficiency of BESS installed capacity).

With regard to other energy vectors, Spain has advanced its legal framework for renewable gasses with two 2025 regulations issued by the Spanish National Commission on Markets and Competition (CNMC) which establishes access and capacity allocation rules for the natural gas system; and a 2025 CNMC resolution establishing the procedure for managing requests and contracting the connection of renewable gas production plants to the natural gas transmission or distribution network. These regulations address access and connection for biomethane and green hydrogen, among other renewable gasses.

Therefore, despite the challenges, there are reasons for optimism for players in the market.

Looking ahead

One reason for optimism is the ambitious Spanish goal for BESS deployment. In addition to relieving grid-congestion, BESS could improve the profitability of renewables through its manageability (especially in the case of hybridized BESS), as it allows for timely distribution of renewable influx into the transmission and distribution grids, which would permit injection of renewable energy at more profitable hourly frames. In addition, the Spanish government’s intention is for BESS to participate in all ancillary services currently existing in the market, as well as the future voltage control market, which could translate into the financial viability of these projects.

Increased demand for electricity is a key factor in the Spanish government’s plan to provide price stability,grid-management improvement and consumer participation in the electricity market. In this sense, the draft decree also includes further clarification in the process for the access and connection of demand facilities into the grid. Sectors like data centers, charging stations for electric vehicles and green hydrogen production have been pinpointed by the Spanish government as potential drivers for the increase of renewable electricity demand.

Furthermore, the Spanish government intends to create a capacity market for the Spanish peninsular electricity system, with a draft order pending approval.  Using pay-as-bid auctions, it aims to ensure electricity supply and system firmness, and if approved, is expected to attract investment in BESS, renewables and low-carbon technology like combined cycle plants.

Power purchase agreements continue to provide the sector with price stability and developers with financing opportunities, and, lastly, 2024 and 2025 have brought further developments in renewable gasses, which are key to achieving the total decarbonization of the Spanish economy by 2050.

Spain is only surpassed by Germany and France when it comes to biogas potential

Although green hydrogen still needs development (with some estimates suggesting it will only mature around the 2028-2030 period, mainly due to its current costs, the need for infrastructure investment and the lack of mature offtakers in the market), green hydrogen is a clean, renewable and storable energy source. On top of this, biomethane is a mature technology already widely used in certain countries. although it remains at an early stage of deployment in Spain. According to some estimates, Spain is only surpassed by Germany and France when it comes to biogas potential., with the PNIEC foreseeing the deployment of 20 TWh in biogas by 2030.

In conclusion, while Spain’s commitment to decarbonization by 2050 remains steadfast, continued regulatory clarity, infrastructure development and investment and financial viability incentives will be crucial to overcoming current obstacles and ensuring Spain achieves its ambitious energy transition goals.