A Tale of Two Cities

Rome vs Madrid: Different Energy Dependency Pathways

Rome and Madrid sit at roughly the same latitude. Both countries have excellent solar irradiance. Both are members of the EU’s single electricity market. Both have large, industrialised economies that need dependable, affordable power. A decade ago, their energy systems looked broadly similar — heavily reliant on imported fossil fuels, with modest but growing renewable capacity.

Today they are diverging fast. And the consequences are showing up in electricity bills, industrial competitiveness, and energy security.

The numbers

Spain generated 56% of its electricity from renewables in 2024, up from around 38% in 2019. Solar is now Spain’s single largest source of power generation. Wind and solar together met 46% of Spain’s electricity demand in the first half of 2025. In August 2025, Spain recorded its first calendar month with zero coal-fired generation. Ten years earlier, in August 2015, coal supplied a quarter of its electricity.

Italy still generates 43% of its electricity from fossil gas. The country produces more gas-fired power than Germany and Spain combined. Renewables covered 41% of electricity demand in 2024, a figure that has barely moved from the mid-30s over the past five years. Italy’s national 2030 renewables target is 55% — while Spain, Germany and the Netherlands all target 75% or above.

The solar capacity numbers tell a parallel story. Spain’s solar fleet stagnated between 2012 and 2018 at around 4.7 GW, held back by the infamous “sun tax” and hostile regulation. When the policy changed, Spain added capacity at pace — reaching roughly 25 GW by end-2023, 32 GW by end-2024, and approximately 48 GW by end-2025. Italy’s solar fleet grew slowly from around 19 GW in 2015 to 22 GW by 2020 — five years in which it added roughly the same capacity Spain now installs in six months. Italy has since accelerated to around 37 GW by end-2024, but remains well behind Spain despite having comparable solar resources.

The price gap

This is where the divergence becomes economically painful.

In the first half of 2025, Spain’s wholesale electricity price was 32% below the EU average — approximately €62/MWh. Italy’s averaged roughly €136/MWh over the same period. Italian businesses are paying more than double what their Spanish competitors pay for electricity.

This is not a temporary spike. It is structural.

Spain’s wind and solar growth has reduced the influence of gas-fired generators on its electricity price by 75% since 2019. Fossil generators now set the wholesale price in only 19% of hours — the lowest share among the five European countries with the largest gas fleets. Spain has effectively decoupled its electricity price from the gas price. When gas prices rise, Spain’s electricity prices barely move. Italy tracks every fluctuation in global LNG markets.

Ember’s October 2025 analysis put it plainly: Spain’s renewables build-out has cut the link between gas and power prices. Italy remains tethered to it.

What went wrong in Italy

Italy is not short of sunshine. Southern Italy has 5-10% less than Spain. It is short of policy coherence.

In May 2024, the Italian government banned ground-mounted solar installations on agricultural land. Italia Solare, the national solar industry body, called it a €60 billion mistake — estimating the lost private investment and tax revenue that would have followed deployment at scale. This is a country whose population is decreasing, and 1.3 million farmers have ceased their activity over the past 20 years. The ban carved out narrow exemptions for repowering existing plants, closed quarries, and land adjacent to motorways, but closed the door on the large-scale ground-mount projects that have driven Spain’s expansion.

The permitting environment is equally obstructive. Between 2015 and 2020, Italy installed less than 2 GW of new wind capacity and only 3 GW of solar. That is five years of near-stagnation in a country with some of the best solar and wind resources in Europe. The bureaucratic complexity of Italian permitting — involving national, regional, and municipal authorities, environmental impact assessments, and heritage protection constraints — means projects routinely take years to be approved. Even with rooftop solar, I have a friend whose application for 12 kW peak solar roof was rejected as “too much”, and they were granted 8 kW by the local authorities. Spain streamlined its permitting and opened its grid. Italy added layers.

Then there is the tax structure. Italy charges 22% VAT on electricity and 10% VAT on gas. The tax system actively penalises electrification. If you install a heat pump, you pay more tax on the electricity it uses than your neighbour pays on the imported gas that feeds their boiler. This is the opposite of what a rational energy policy would do. It subsidises the molecule and taxes the electron.

What Spain did

Spain’s story is not one of geographical luck. It is one of deliberate market design.

After years of policy hostility — including the retroactive cuts to feed-in tariffs and the infamous “Sun Tax” on self-consumption that effectively froze the market between 2012 and 2018 — Spain reversed course. The Sun Tax* was abolished in 2018. Permitting was simplified. Auction mechanisms were redesigned to favour large-scale solar and wind deployment. Corporate PPAs were actively encouraged.

The result was an extraordinary acceleration. Spain added roughly 5.6 GW of new solar in 2023, 6.5 GW in 2024, and over 8.7 GW in 2025. It now has the largest solar fleet in Europe. And the price impact has been direct: more renewables meant gas set the electricity price less often, and wholesale prices fell.

Spain also moved to decouple from the European marginal pricing mechanism during the energy crisis, introducing the “Iberian exception” — a temporary gas price cap that protected consumers while the structural shift to renewables continued. The policy was imperfect and temporary, but it bought time for the underlying transformation to take hold.

The lesson

The comparison between Italy and Spain is a case study in how market design and policy choices determine energy costs — not geography, not resources, not latitude.

Both countries have abundant solar. Both face similar grid integration challenges. Both have ageing infrastructure and complex planning regimes. The difference is that Spain decided to build, and Italy decided to deliberate.

Italy now faces a compounding problem. High electricity prices make it harder for businesses to invest in electrification. Low levels of electrification keep Italy dependent on gas. Gas dependency keeps electricity prices high. The cycle reinforces itself.

Spain broke the cycle by building enough renewables to push gas to the margins of the system. In doing so, it turned its electricity price from a liability into a competitive advantage.

For any European country — or any country anywhere — the question is the same. You can build the electrical system and harvest the economics. Or you can stay tethered to the molecule and pay whatever the gas market demands.

Rome and Madrid sit at the same latitude. They no longer sit at the same price.

Gradually. Then Suddenly

end

*The Sun Tax forced private solar users to pay tax on the electricity they generated for their own use. Leading to the homeowners having to hide their solar systems!

Nadim Chaudhry is the author of ElectroState: How the Electrification E-Flip, China, Geopolitics will Reorder the Global Economy, examining the global transition from fossil fuels to electrification through geopolitical and systems lenses.

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