AleaSoft Energy Forecasting, June 26, 2025. The Iberian Peninsula faces a summer marked by high temperatures, with potential record highs and a direct impact on electricity demand, renewable energy production and market prices. Adding to this scenario are geopolitical tensions in the Middle East, which could drive up gas prices and worsen volatility. In this context, the importance of large consumers adopting hedging strategies is reinforced, as a way to protect themselves against market volatility and price spikes.
Since the last week of May, the Iberian Peninsula has been experiencing temperatures significantly above the historical average. On some days, maximum temperatures have reached levels not seen in over four decades, pointing to an exceptionally hot summer ahead. This is not an isolated phenomenon, but part of a clear trend of steadily rising annual average temperatures, confirmed by the latest record set in 2023 and consistent with global climate change patterns.
The last weekend of June is expected to bring the most intense heatwave in decades for this time of year. Current trends suggest that the summer of 2025 could be among the hottest on record, with significant implications for the energy sector. Heatwaves have a direct impact on both electricity supply and demand, disrupting market balance and putting upward pressure on prices.
Impact of high temperatures on the electricity system
On the demand side, rising temperatures during the summer months lead to increased electricity consumption, driven mainly by the widespread use of air conditioning and cooling systems. This recurring phenomenon in recent years is intensified during periods of prolonged or extreme heat.
On the supply side, the impact is also significant. High temperatures affect the operational efficiency of several energy generation technologies. Nuclear power plants and combined cycle gas turbine plants may face constraints due to difficulties in adequately cooling their systems under extreme thermal conditions. In the past, nuclear plant outages in France have led to price increases across electricity markets in Europe.
Moreover, although solar photovoltaic energy production depends directly on solar irradiation, elevated temperatures reduce panel efficiency, which can limit generation capacity precisely when demand is at its highest.
This mismatch between rising demand and potentially constrained supply increases the risk of strain on the electricity system and of high prices in wholesale electricity markets.
Gas prices are not helping
Adding to this situation is the volatility in international gas markets, a key commodity for electricity generation in Europe. Ongoing geopolitical tensions in the Middle East, particularly between Iran and Israel, are creating uncertainty, fuelling volatility, and putting upward pressure on natural gas prices. Any escalation of the conflict could lead to supply disruptions and sharp price spikes, further increasing pressure on European electricity markets.
Hedging against an uncertain environment
In this context of high uncertainty, volatility and the risk of elevated prices, active risk management becomes particularly important for large energy consumers, especially electro‑intensive industries. Hedging tools, whether through futures markets or bilateral contracts at agreed prices, are increasingly essential for mitigating the impact of price fluctuations during what is expected to be a very hot summer.
Data: the key to analysing and understanding the electricity system
All the data presented in this article can be accessed through the Alea Energy DataBase, an online database for energy sector professionals featuring up‑to‑date information from the main energy markets and all the key variables required for analysis.
European energy markets, PPA and energy storage: key topics in the upcoming AleaSoft Energy Forecasting webinar
The 57th edition of AleaSoft Energy Forecasting’s monthly webinar series will take place on July 10. This session will explore the latest trends and prospects for energy markets in Europe, the evolution of the PPA market —with a focus on the strategies of large consumers— and the key role of energy storage in the new energy landscape. The webinar will also cover the latest IDAE funding call, with a budget of 700 million euros, aimed at supporting energy storage projects. The analysis table of the webinar in Spanish will feature Pedro González, Director‑General of AEGE, who will provide insight from the perspective of electro‑intensive consumers, and Roger Font, Managing Director Project Finance Energy at Banco Sabadell, who will discuss key aspects of financing renewable energy and storage projects in the current environment.
Source: AleaSoft Energy Forecasting.
