Impact of the New Spain-Portugal Interconnector on the Iberian Power Market

A new power interconnector linking Galicia in Spain with northern Portugal began operations on July 2, 2026. According to the European Commission, the facility added approximately 1GW of electricity exchange capacity between the two countries, raising the maximum to about 4.2GW.

The significance of this project goes beyond simply adding another transmission line across the border. When wind and solar generation exceeds regional demand, electricity can be sent to a broader market, while regions experiencing generation shortages or equipment failures have greater scope to receive power from the grid on the other side. However, the announced maximum capacity may differ from the capacity actually available to the market.

Key Figures and Structure of the New Interconnector

Here, MW or GW represents the amount of power that can be transmitted at a specific moment. The amount of electricity actually transferred over a given period is measured in MWh or GWh. Therefore, the fact that the maximum exchange capacity is 4.2GW alone does not indicate the annual volume of electricity traded.

The term bidirectional also does not mean that the same 4.2GW is always available in both directions. The transmission system operators of the two countries separately calculate the capacity that can be offered to the market, taking into account the generation mix, demand, maintenance status, and grid safety criteria in each direction. As a result, the available capacity from Spain to Portugal may differ from that in the opposite direction.

How Surplus Wind and Solar Power Crosses the Border

Spain and Portugal operate power systems with high shares of wind, solar, and hydroelectric generation. Because generation changes rapidly with the weather, there may simultaneously be periods when one region has surplus electricity and another region needs power.

The process through which surplus renewable energy is used generally works as follows.

1. Power producers submit hourly generation volumes and prices to the Iberian electricity market.
2. Market results are determined based on demand in Spain and Portugal, generation offers, and available cross-border capacity.
3. Commercial exchange schedules are created from regions able to produce inexpensive electricity to relatively more expensive regions.
4. Transmission system operators manage actual operations by checking voltage, frequency, line overloads, and safety criteria in the event of failures.
5. If forecasting errors or unexpected failures occur, reserve capacity and real-time balancing resources are deployed.

Renewable electricity does not travel to its destination through a separate physical route. In an alternating-current power grid, actual current is distributed across multiple lines according to electrical impedance and overall grid conditions. This is why cross-border transactions determined by the market may not fully match physical power flows.

Conditions for Reducing Grid Congestion and Curtailment

Curtailment refers to measures that reduce the output of wind and solar facilities capable of generating electricity because of grid safety or supply-demand balancing requirements. The new interconnector can reduce the likelihood of curtailment by providing an additional route for sending surplus electricity across the border.

However, the following conditions must also be met for this effect to materialize.

• There must be demand on the other side. If both countries simultaneously produce excess renewable energy, there may be insufficient export destinations even when cross-border capacity remains available.
• The domestic grids of both countries must have spare capacity. If domestic transmission lines between wind and solar farms and the cross-border connection point are congested, the new interconnector cannot be fully utilized.
• Storage and demand-response resources must operate. Pumped-storage hydropower, batteries, industrial demand adjustment, and electric-vehicle charging help shift surplus electricity to other periods.
• Capacity must be made available to the market. Transmission operators offer only the capacity remaining after accounting for maintenance and safety margins.
• The system must remain safe during failures. Operating limits are set so that the loss of one critical facility does not lead to a widespread blackout.

Expanding interconnection capacity is therefore not a sufficient condition for reducing curtailment, but one of several solutions. Domestic transmission networks, storage facilities, flexible generation sources, and demand response must also be expanded to increase renewable-energy hosting capacity reliably.

Impact on the Iberian Electricity Market and Wholesale Prices

Spain and Portugal operate MIBEL, a joint wholesale market, but cross-border interconnection capacity is not always sufficient. When adequate exchange capacity is available, generators in the relatively less expensive region can serve demand more broadly across both countries, allowing prices to converge or become equal.

Conversely, the market becomes congested when the required volume of electricity exchange exceeds interconnection capacity. Prices in the two countries then separate, and prices may be higher on the side facing an electricity shortage. The new interconnector could reduce the frequency and duration of such price separation.

For example, when wind power is abundant in northwestern Spain and demand is high in Portugal, electricity transfers from Spain to Portugal may increase. In the evening, when hydropower conditions are favorable in Portugal and solar output declines in Spain, flow in the opposite direction may be economically advantageous.

However, expanding interconnection capacity does not lower prices during every period. Prices may rise somewhat from previous levels in regions that export more electricity and may fall in importing regions. The main effects are to narrow the price gap between the two markets and enable lower-cost generation sources to be used across a broader area.

Consumer Electricity Rates and Security of Supply

Consumer Rates

If the interconnector mitigates wholesale price spikes and price differences between the two countries, it may also create downward pressure on retail rates. However, the final rates paid by households and businesses do not move in line with wholesale prices because they consist of the following components.

• Wholesale electricity procurement costs
• Transmission and distribution network charges and interconnection investment costs
• Retail operators’ operating and risk-management costs
• Taxes, levies, and policy costs
• The method used to reflect prices in fixed-rate plans or long-term contracts

It therefore cannot be assumed that the new interconnector will necessarily lower consumer rates. The net effect must be assessed by considering the generation costs saved through congestion relief, the costs of constructing and operating the power network, and each country’s rate regulations.

Security of Supply

The interconnector increases the options for procuring power from the other side when one country experiences power plant failures, drought, extreme heat, or an unexpected increase in demand. It also broadens the scope for the two countries to share required reserve capacity.

However, as interconnection increases, the risk that frequency disturbances or large-scale equipment failures in one region may spread to another must also be managed. This is why automatic protection systems, emergency power exchange procedures, joint training among transmission system operators, and real-time information sharing are necessary.

Interconnection with France and the Energy Island Problem

The Iberian Peninsula has long been described as an “energy island” because its power-grid connections with the center of continental Europe are relatively limited. Even if bottlenecks between Spain and Portugal are reduced, there will still be limits on sending surplus electricity from Iberia as a whole to other parts of Europe unless sufficient exchange capacity is available across the Pyrenees from Spain to France.

This structure creates the following problems.

• Export destinations are limited when Spain and Portugal simultaneously generate large amounts of solar and wind power.
• Price differences between France and the Iberian Peninsula may persist for extended periods.
• In circumstances affecting all of Iberia, such as drought or a prolonged period of low wind speeds, capacity for imports from outside the region may be insufficient.
• Congestion may recur if investment in renewable generation, green hydrogen, and electrified industries grows faster than domestic transmission networks and cross-border interconnections.

New interconnection projects toward France are a key task in integrating the Iberian market more deeply with the European electricity market. At the same time, domestic transmission networks in Galicia and northern Portugal must be reinforced, storage facilities expanded, and grid-stabilization resources secured.

Indicators for Assessing Future Effects

The performance of the new interconnector is difficult to evaluate based solely on its nominal capacity at completion. At a minimum, the following indicators must be monitored across multiple seasons.

In particular, the maximum figure of 4.2GW must be distinguished from actual available capacity. Even if annual utilization is low, the interconnector may have significant grid value if it serves as insurance by preventing supply shortages during demand spikes or equipment failures. Conversely, even if utilization is high, continued internal bottlenecks and repeated curtailment in both countries would signal a need for additional investment.

Overall Assessment

The new Spain-Portugal interconnector is critical infrastructure that strengthens the physical foundation of MIBEL and enables renewable energy to be used across a broader region. The approximately 1GW of additional exchange capacity could reduce price differences, curtailment, and the risk of supply shortages in the two countries.

However, the interconnector itself does not guarantee inexpensive electricity or unlimited renewable-energy hosting capacity. Its actual performance will depend on the capacity made available to the market, the domestic grids of both countries, storage and demand response, interconnection toward France, and consumer-rate systems. Over the long term, these elements must be assessed as part of a single, integrated European power-system challenge.