Systemic flaws keep Germany’s electricity prices tied to volatile gas markets
Germany’s power prices remain high because the electricity system still lets expensive gas set the market price, unlike Spain’s model.
Recent spikes in European gas prices, driven by geopolitical conflicts, have caused a surge in electricity costs across Germany. Under the merit-order principle, the cost of the most expensive generation unit required each hour sets the price for the entire market, and gas turbines frequently fill that role. In contrast, Spain’s electricity market relies much less on gas, resulting in a lower average price.
The piece highlights Spain’s shift toward renewables and nuclear, noting a substantial increase in clean-energy capacity since 2019. It suggests that if Germany adopted a similar system—expanding renewables, strengthening transmission and storage—it could reduce power prices and keep fossil-fuel spending within the country. Current policy, however, continues to favor new gas plants over broader grid and storage upgrades.
Why it matters
High power costs affect households and industry; system changes could lower bills and reduce reliance on volatile gas markets.
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