Portugal and Spain are on the threshold of the creation of an Iberian electricity market. In order to help its development, the power of the electric interconnection between the countries has been increased and market mechanisms designed to resolve congestion, should it arise. A system of joint supply for the Iberian Peninsula will lead to single price for the whole area except at times when the interconnection is saturated, in which case prices will be somewhat higher in the importing zone. In the medium term, the hope is that both systems will have very similar generating equipment and that their variable costs will equalize due to the substitution of the most obsolete equipment with combined cycle power stations, and to the increase of exchange capacity. The coming into effect of this market will bring about improvements in the security and efficiency of supply in both countries. There will also be some obstacles to overcome, such as, for example, the current regulatory frame deficiencies on power generation, the contacts which exist at present in Portugal between the producers and the National Electricity Network, the asymmetry of the distribution channels in each country, the differences in rates and the limited capacity for exchange. (C) 2007 Elsevier Ltd. All rights reserved.