AleaSoft Energy Forecasting, March 16, 2026. Heavy winter rainfall in Spain has significantly increased hydro reservoir levels in early 2026, placing them about 50% above the 10-year average. Because hydro reservoirs act as large-scale energy storage, abundant water allows hydro generation to cover more electricity demand, reducing reliance on fossil fuels. As a result, hydrological conditions strongly influence electricity price formation and its dynamic, affecting dispatch decisions and storage strategies.
The hydro reservoirs in Spain
Heavy winter rainfall in Spain has significantly increased the levels of hydro reservoirs. In the first months of 2026, the reserves are well above the 10-year average, surpassing it by 50% by mid-February. This is the exact opposite of the situation observed in late 2022, when water reserve levels were around 28% below the 10-year average due to prolonged drought.
Source: MITECO.Water reservoirs act as large-scale energy storage systems. Every cubic metre of water stored behind a dam represents gravitational potential energy that can easily be converted into electricity. In Spain’s electricity system, which has around 20 GW of hydro capacity, including 3 GW of pumping capacity, and high levels of renewable energy penetration, this flexibility plays a critical role.
Impact of hydro energy on the electricity market prices
Since Spain participates in the Iberian wholesale electricity market (MIBEL) operated by OMIE, which follows the marginal pricing model, the last plant needed to meet demand sets the price. In practice, during high-demand low renewable hours, the marginal price is set by gas-fired combined-cycle plants, because their opportunity cost is higher compared to very low marginal cost of removable energy generators or hydro plants.
Consequently, during periods of water scarcity when hydro-energy is unavailable, the thermal gap needs to be covered by fossil fuels, which pushes prices up. On the other hand, during the seasons of abundant rainfalls, hydro, energy can cover substantial fraction of demand and pushes prices down.
Source: Prepared by AleaSoft using data from Red Eléctrica and OMIE.Given the above dependence, hydrology is not just environmental data. It is a forward-looking energy signal. It shapes short-term dispatch decisions, medium-term storage optimization, and forward price dynamics. Reservoir levels influence capture rates, volatility patterns, peak spreads, and balancing market opportunities.
To understand how hydrological conditions translate into price formation the advanced revenue modelling and price forecasting become essential.
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Source: AleaSoft Energy Forecasting.