Spain challenges fossil fuels on its islands

The Spanish government is preparing a major overhaul of the energy sector across its island territories. The Ministry for the Ecological Transition has unveiled a draft decree designed to allow energy storage systems to compete directly with conventional fossil fuel power plants. For regions such as the Canary Islands and the Balearic Islands, the proposal could pave the way for more affordable and significantly cleaner electricity.

The limited land availability and geographical isolation of island grids make the energy transition particularly challenging. Until now, energy security in these territories has relied largely on costly and highly polluting fossil fuel generators. Spain is now aiming to change that.

Energy storage to compete on equal footing

The proposed legislation will amend the existing decree governing isolated electricity systems outside the Iberian Peninsula. The new rules will apply not only to the Balearic and Canary Islands but also to Spain’s North African autonomous cities of Ceuta and Melilla.

For the first time, energy storage systems will be granted the same regulatory status as conventional generation assets. In practice, this means:

• Both standalone battery energy storage systems (BESS) and battery systems co-located with wind or solar PV projects will be eligible to participate.
• Energy storage assets will be able to compete directly with fossil fuel power plants in the day-ahead scheduling of the electricity system.
• If an energy storage system can supply electricity at a lower cost than a conventional generator, the system operator will dispatch the stored renewable energy instead. This straightforward market mechanism is expected to reduce both operating costs and CO₂ emissions.

Protecting investors from negative electricity prices

The Spanish government has also recognised another growing challenge. Increasingly frequent periods of zero or even negative wholesale electricity prices on the mainland market have significantly reduced revenues for renewable energy producers. As a result, investors have become less willing to finance new renewable energy projects on the country’s isolated islands.

To address this issue, the draft decree introduces a new electricity pricing mechanism. Its primary objective is to protect renewable energy producers from adverse price signals originating on the mainland while creating stronger financial incentives to generate electricity locally on the islands.

The public consultation on the proposed legislation has now begun and will remain open until 4 September 2026.