A note on hydropower as a marginal price setter for Spain's electricity market in 2021-2022

From January 2021 to March 2022, wholesale Spanish spot electricity prices reached a record high of euro700/ MWh. Surprisingly, hydropower set the marginal market price for 52% of the hours in 2021 and 43% in the first quarter of 2022. Combined-cycle gas-fired units, which typically determine the marginal price, were marginal in only 16% and 21% of the hours in 2021 and 2022, respectively. Hydropower set prices between 3% and 12% higher than an estimate of their opportunity cost, and they were responsible for charging 69% of the prices above euro500/MWh. The empirical evidence suggests that 2021 was an unusual year compared to 2018 and 2019 because the role played by hydropower as a marginal price setter was relatively more prominent.