Capstone believes operational solar, wind, and battery assets in the EU will continue to benefit from elevated wholesale prices, as the Iran conflict has caused structural damage to global energy supply. In contrast, renewables projects under construction face risks from higher input costs, supply disruptions, and expensive financing. National interventions will not durably impact renewable revenues, as the EU “merit order” pricing mechanism remains intact.
- The Iran conflict has taken around a fifth of global oil and liquefied natural gas (LNG) supply offline, driving European gas prices to ~40% above pre-conflict levels. Repairs to Qatar’s Ras Laffan terminal—one of the world’s largest LNG export facilities—will take three to five years. European gas prices will remain elevated through at least winter 2026-27, before markets begin to adjust.
- Solar, wind, and battery storage assets operating in the EU will continue to benefit. Due to the merit order mechanism, these assets sell at the elevated price set by gas plants despite their minimal operating costs. In contrast, renewables projects still under construction face pressure from rising input costs, shipping delays, and more expensive financing.
- Rising energy bills are pushing EU governments to intervene to reduce prices. While these interventions can have an immediate and material impact on renewable revenues—as seen recently in Italy—they are difficult to sustain while the EU’s merit order pricing mechanism remains intact.
Merchant Renewables in Operation Are the Winners; Construction-Phase Projects Face Headwinds
Operating merchant renewables and battery energy storage systems (BESS) are the primary beneficiaries. European gas prices have risen ~40% since the conflict began. Under the merit order—the mechanism by which all generators receive the price set by the most expensive plant needed to meet demand, typically a gas plant—wind and solar farms, which produce at near-zero cost, capture these elevated prices. BESS assets, meanwhile, are currently benefitting from wider intraday price spreads.
Assets operating under contracts for difference (CfD)—a government support mechanism that guarantees a fixed price for electricity—do not capture the windfall: operators must return revenues above the fixed price to the state. This is in contrast to merchant assets, which sell at prevailing market prices and capture the full benefit of elevated wholesale prices. Some operators are evaluating whether to delay their CfD start dates to capture higher merchant prices in the interim, a trade-off that regulators are monitoring.
Developers that are yet to make a final investment decision (FID) and construction-phase projects are the most exposed. Projects face three key headwinds as a result of elevated power prices:
- Input costs: steel and aluminium prices typically follow gas prices with a lag of approximately 60 days. A sustained ceasefire would gradually ease this pressure, but the lag means projects face elevated pricing through at least Q3 2026.
- Supply chain delays: components manufactured in Asia normally reach Europe via the Red Sea, but the conflict has forced shipping carriers to reroute around the Cape of Good Hope, adding 10–14 days per shipment.
- Financing: the European Central Bank (ECB) postponed planned rate reductions on 19th March. Capital-intensive renewables projects are highly sensitive to rate increases because virtually all expenditure is sourced from borrowing upfront.
The combined impact is that it will be materially harder to reach final investment decisions on new renewables projects until financing costs and input prices normalise
European Power Prices to Remain Elevated Into 2027
The two-week ceasefire announced on 8th April provides temporary relief, but the structural damage to Ras Laffan and the logistics of supply normalisation mean that TTF (Title Transfer Facility, the EU’s benchmark gas price) is unlikely to return to pre-conflict levels (~€30/MWh) before 2027 at the earliest. The table below maps the investment implications for European renewables and storage assets across three TTF price scenarios through winter 2026–27 (see Exhibit 1).
Exhibit 1: European Energy Investment Implications Across TTF Price Scenarios
| TTF Price Scenario | Assumptions | Implications for Operating Renewables and BESS | Impact on Construction Pipelines | National Intervention Risk |
| TTF returns to €35– €40/MWh by Q4 2026 | Assumes durable resolution and Hormuz reopening; Ras Laffan damage keeps prices above pre-conflict levels | Wholesale windfall fades partially; CfD-contracted assets unaffected | Input cost pressure eases as gas price moderates; ECB resumes rate cuts; FID activity recovers | National price interventions lose political urgency |
| TTF volatile in €50–€80/MWh range through winter 2026–27 | Assumes intermittent disruptions or protracted negotiations; summer refill season at risk | Operating assets sustain elevated revenues; wider intraday spreads benefit BESS | Elevated input costs persist; Red Sea rerouting continues; financing costs remain elevated | National price interventions multiply ahead of winter energy bill spikes |
| TTF exceeds €100/MWh | Assumes sustained re-escalation and prolonged Hormuz closure, potentially combined with Red Sea disruption | Revenue windfall accelerates, but windfall taxation risk rises sharply at EU level | Pre-FID projects suspended; financing shock comparable to 2022–23 | Broad-based intervention across multiple Member States |
Source: Capstone analysis
Note: TTF paths are illustrative; they do not represent Capstone’s views on the course of the conflict.
National Price Interventions: A Material but Contained Risk
We believe the merit order will survive intact through at least 2028. The March European Council outcomes support this view. The risk to renewables investors is that individual Member States act unilaterally to compress wholesale prices. According to the Institut Jacques Delors, 22 of 27 Member States have adopted measures to date, totalling more than 120 individual interventions at an estimated cost of €9.2 billion. The majority consist of untargeted tax cuts or price caps, which blunt price signals rather than target vulnerable households.
Italy’s Decreto Bollette, published on 18 February 2026 (10 days before the conflict began), proposes to reimburse gas plants for their Emissions Trading System (ETS) carbon costs, lowering wholesale prices in hours when gas is setting the market price. Italian forward electricity prices dropped roughly 15% on announcement. We believe the measure is unlikely to survive: Italy is heavily interconnected with the rest of the EU (unlike Spain, which successfully capped electricity prices in 2022), the decree does not meet EU state aid conditions tying carbon cost compensation to decarbonisation investments, and it would mark a structural weakening of the EU ETS (a tool the European Commission has repeatedly committed to preserving)
Since the outbreak of the conflict, other Member States have taken their own measures. Spain has approved a €5 billion package centred on consumer-facing value added tax (VAT) cuts rather than wholesale market intervention. The March European Council conclusions invite the Commission to work with Member States on national temporary and targeted measures to mitigate fuel-cost pass-through, subject to conditions on preserving investment signals. At the EU level, five finance ministers (Germany, Spain, Italy, Portugal, and Austria) have called on the Commission to develop a bloc-wide windfall profit tax. A bloc-wide windfall tax would require agreement among all 27 Member States, making it a slower-moving risk than unilateral national measures.
The table below maps key Member State interventions as of 13 April 2026.
Exhibit 2: Member State Energy Price Interventions in Response to the Iran Conflict
| Country | Measure | Impact on Renewables | Capstone Assessment |
| Italy | Decreto Bollette: proposes to reimburse gas plants for ETS carbon costs | Forward electricity prices fell ~15% | Unlikely to survive in current form; Italy heavily interconnected; EU state aid scrutiny expected |
| Spain | €5 billion package: VAT on all energy cut from 21% to 10%; fuel duty reductions | Limited; Spain’s power prices ~€50/MWh (renewables set price 85% of hours) | Consumer-focused; does not alter wholesale market; expires 30 June 2026 |
| France | €70 million targeted plan: 20- cent/litre fuel rebate for transport, tax reduction on agricultural diesel, fishing subsidies; explicit rejection of generalised tax cuts | No impact on electricity market. French wholesale prices are less frequently gas-set (nuclear/renewables dominant) | Targeted and timelimited (30 April 2026); Electrification Action Plan presented on 10 April, targeting €10 billion annual support by 2030, including the end of gas boilers in new builds, expanded electric vehicle (EV) leasing, and industrial electrification aids |
| EU level | March European Council: Member States invited to design national temporary measures; ETS review requested by July 2026. Oil Coordination Group convened on 8th April; College of Commissioners discusses energy on 13th April; forthcoming “Toolbox” to address energy prices | ETS review could lower gas-set wholesale prices if carbon cost growth is limited | Merit order preserved through at least 2028; national measures subject to conditions on investment signals |
Source: European Commission, European Council conclusions, Capstone analysis
Untargeted Subsidies Will Deepen Fiscal Strain Without Resolving the Energy Supply Shortage
Energy subsidies do not increase supply. With around a fifth of global oil and LNG offline, subsidising domestic consumption simply forces prices higher in other countries. In 2022, European governments spent more than 2.5% of GDP on energy support, but more than half went to broad subsidies that blunted the price mechanism rather than targeted support for vulnerable households, and Europe outbid South Asia for scarce LNG supplies in the process.
The current fiscal context is materially worse than in 2022: interest rates are higher, bonds have sold off in gas-dependent countries (increasing government borrowing costs), and borrowing to subsidise energy bills will consume scarce fiscal space while complicating central bank efforts to control inflation.
Governments have two options to lower energy bills: pay for subsidies out of public budgets, or force producers to accept lower revenues. When borrowing is expensive and deficits are already stretched, the second option becomes more attractive politically. This poses a risk for renewables investors: the less governments can afford to subsidise consumers, the more likely they are to intervene on wholesale prices.
What’s Next
On the regulatory side, five catalysts will shape the investment landscape in the coming months:
- The College of Commissioners is discussing the energy impact of the war on 13th April. The key decision it will make is whether the forthcoming “Toolbox” will extend beyond consumer-side measures to include state aid guidance for wholesale price interventions.
- The state aid ruling on Italy’s Decreto Bollette, which will set the precedent for whether other Member States can replicate carbon cost reimbursement measures. Capstone believes the measure will not survive in its current form.
- The Commission’s forthcoming “Toolbox” of coordinated energy measures, requested by EU leaders at the March European Council and currently in preparation following the Oil Coordination Group meeting on 8th April. The scope of this package will reveal whether the Commission will give in to Member State pressure to develop an EU-wide framework or leave it to Member States to take unilateral action.
- The Transport, Telecommunications and Energy Council (Energy) on 26 June 2026, the next formal setting for EU energy ministers to address national price interventions and the Commission’s progress on temporary measures to mitigate fuel-cost pass-through.
- The Commission’s ETS revision proposal, due by July 2026 as requested by the March European Council, which could lower gas-set wholesale electricity prices if measures to limit projected carbon cost growth are included.
Two-Speed Market for European Renewable Energy Investors
The energy price shock resulting from the Iran conflict creates a two-speed market for European renewable energy investors. Operating renewables and BESS assets benefit: the merit order ensures they capture wholesale prices set by expensive gas plants, and those prices will remain elevated through winter 2026–27 across all conflict scenarios. Construction-phase assets face the opposite dynamic: higher steel costs, longer delivery times, and more expensive financing narrow returns precisely when new capacity is most needed.
The durable risk is political. As energy bills rise heading into winter, Member State governments will face growing pressure to intervene on electricity prices. For investors, the key watchpoint is whether national measures remain targeted and time-limited as the conflict develops.
Read more from Capstone’s energy team:
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