Heavy winter rainfall across Spain has dramatically boosted hydro reservoir levels, pushing them far above historical norms. In early 2026, reserves exceeded the 10-year average by roughly 50% by mid-February—a sharp reversal from late 2022, when prolonged drought left water levels about 28% below average. This shift highlights the growing importance of hydrology in energy systems. Hydro reservoirs function as large-scale energy storage, where each cubic metre of stored water represents potential electricity that can be dispatched when needed. With around 20 GW of hydro capacity, including 3 GW of pumped storage, Spain’s system relies heavily on this flexibility to support its expanding renewable energy mix.
The impact of hydro conditions on electricity prices is substantial. Spain operates within the Iberian wholesale electricity market (MIBEL), which follows a marginal pricing model, meaning the most expensive plant required to meet demand sets the market price. During periods of high demand and low renewable output, gas-fired plants often become the marginal producers due to their higher operating costs. However, when water is scarce and hydro generation is limited, the system depends more on fossil fuels, driving prices upward. Conversely, abundant rainfall increases hydro generation, allowing lower-cost electricity to meet demand and pushing prices down.
Hydrological conditions therefore act as more than just environmental indicators—they are a forward-looking signal for the energy market. Reservoir levels influence short-term dispatch decisions, medium-term storage strategies, and long-term price expectations. They shape capture rates for renewable projects, affect price volatility, and create opportunities in peak pricing and balancing markets. Understanding this relationship is essential for accurately forecasting price movements and optimizing asset performance.
In this context, advanced modelling and forecasting tools are becoming increasingly important. AleaSoft Energy Forecasting, through its AleaGreen division, delivers long-term price and production forecasts that support renewable project financing, PPA negotiations, asset valuation, and hedging strategies. These services include detailed projections for various renewable technologies alongside market price scenarios and guarantees of origin. Meanwhile, its AleaWhite division provides real-time market intelligence via the Alea Energy DataBase platform, offering data analysis and visualization tools that help stakeholders stay informed and make better strategic decisions, AleaSoft reports.