Spain’s energy regulator has rejected an attempt by the government to prop up the nation’s oldest and most polluting coal power plants, stating that Spain’s massive overcapacity means it can safely close a “significant part of the existing coal fleet” without undermining security of supply, write Gerard Wynn of IEEFA (Institute for Energy Economics and Financial Analysis), Paolo Coghe of Paris-based indepdent consultancy Acousmatics, and Carlota Ruiz-Bautista of environmental law centre IIDMA (Instituto Internacional de Derecho y Medio Ambiente) in Madrid.
The statement by the Comisión Nacional de Mercados y la Competencia (CNMC) is significant, given a long history of Spanish government intervention to support domestic coal extraction, and to support coal-fired power generation burning both domestic and imported coal.
The CNMC statement appears favourable for one Spanish electric utility, Iberdrola, which wants to close its last two remaining coal plants, while making another, Endesa, look out of step. Endesa wants to extend the life of three of its coal power plants, arguing this is important to preserve Spain’s security of supply.
Political support for coal, coupled with uncompetitive gas supply contracts, has seen cleaner burning gas-fired power plants stand idle while dirtier, older coal plants operate at full capacity.
Coal phaseout plans
Last November, the Spanish-government proposed a “Royal Decree” which would allow the Government to over-rule a company wishing to shut down a power plant, if the government deemed that the plant was necessary for security of supply, or for another economic reason, or if it found that its closure was incompatible with energy planning.
The proposal appeared targeted at Iberdrola’s coal phaseout plans.
Environmental organizations, such as IIDMA (Instituto Internacional de Derecho y Medio Ambiente), objected on the basis that the proposal was against both Spanish and EU Law.
The CNMC has now made it clear that it agrees with IIDMA’s assessment, noting that it could be contrary to European regulations and be anti-competitive.
CNMC rejected the underlying justification for the royal decree, namely to preserve Spain’s security of supply.
Spain has a capacity margin of about 30% (as measured as the excess of supply over peak demand) (see also this article by Gerard Wynn), far exceeding the safety cushion of 10-15% that grid operators might seek. Despite this, the Spanish government has used a perceived threat to security of supply to support capacity payments for conventional generation in general, and additional support for coal.
CNMC stated: “The Spanish electricity system will not have problems of security of supply in the medium nor the long term. (Even) in the worst scenario with demand peaking at 46,000 MW and low generation, a significant part of the existing coal park could be safely discarded.”
The finding somewhat undermines Endesa’s strategy to invest some €400 million in upgrades to keep three of its coal power plants operating beyond 2030. Endesa has maintained that the upgrades are needed to preserve Spain’s security of supply.
“Preserving efficient thermal capacity will ensure security of supply, and avoid additional costs to the system while reducing emissions,” it stated late last year, in its 2018-2020 strategic plan.
The strategy appears to disregard Spain’s idle gas generation, however, and over-capacity in general.
Coal legacy
As IEEFA noted in a report last year, tighter EU air pollution standards that take effect in 2021 offer Endesa a strategic opportunity to break with its coal legacy, and divert cash for coal power upgrades instead towards the more progressive growth plans of its parent, Enel, in decentralised, digital and renewable energy technologies.
CNMC in its decision also appeared to call into question Spain’s capacity market, which IEEFA has previously described as inefficient and poor value for money for Spanish consumers.
The regulator said: “CNMC considers that excess capacity should be analyzed … taking into account that Spanish consumers have paid significant payments for the availability of power stations, since the liberalisation of the electricity sector (in 1997). The CNMC concludes that … it is necessary to review the regulatory framework in a global manner: security of supply methodology, power plant mothballing, the capacity payment mechanism, and the authorization procedure for new installations.”
Editor’s Note
This article is based on a post on the IEEFA website, A Regulatory Blow to Spain’s Subsidized Coal-Fired Electricity Sector, published on 26 January 2018.
Gerard Wynn is an independent energy expert who regularly works for IEEFA (Institute for Energy Economics and Financial Analysis) and keeps a blog, Energy and Carbon, with Gerard Reid.
Paolo Coghe is an international energy and financial economist and owner of the Paris-based independent consultancy Acousmatics,
Carlota Ruiz-Bautista is a lawyer at the environmental law centre IIDMA (Instituto Internacional de Derecho y Medio Ambiente) in Madrid.
[adrotate banner=”78″]
Frans Rusting says
It is amazing that governments and their institutions continue to not consider real European cooperation instead of considering to continue the use of gas or even coal as backup.
Implicitly this means, I believe, that they don’t see much future in large capacity storage. Which is correct, I think. If storage is to replace back-up generation capacity: how much storage is required? A few weeks with low windturbine production is quite possible. But one needs certainty, and the idea of having enough storage for a longer period of time seems to be a dream that could turn into a nightmare. And this problem gets bigger if windproduction increases.
If all European countries would join forces, they could make use of the weather differences that are nearly always there in a large area like the EU.
The following article describes clearly what the possibilies are. It is based on research by Christian Grams at ETH Zürich, which is based on 30 years weather data.
http://www3.imperial.ac.uk/newsandeventspggrp/imperialcollege/newssummary/news_17-7-2017-14-13-34
One of the results of the study is that, e.g., the Balkans and the North Sea area together nearly always have enough wind which allows the two areas to provide each others’ back-up.
For the short periods of time that this wouldn’t work, the study concludes that conventional hydro storage in the Alps would suffice.
This makes clear that countries will have to join forces. Which is difficult for two reasons:
– Governments are responsible for the provision of energy in their own country, and this is very important for their economy. And they all have different requirements and interests.
– It is a fact that not everyone is willing to transfer the responsibility for ‘energy’ to the European Commission: ‘no more Brussels’. One has to accept this reality.
The solution is a Supergrid, which I prefer to call an ‘Overlay Network’.
This network is to be realised by a cooperative company, owned by the TSO’s, who also are responsible for the governance of the company.
The network connects the existing national networks, thus providing ‘direct interconnections’ between all countries instead of between neighbors.
In this way countries remain responsible for their own provision of electricity, but they can now easily export to or import from any country instead of only to or from neighbors.
Mike Parr says
The article provides a useful description of what has happened & on the generation side what the main players (Ib’ & Endesa) want to do. less clear is why Ratjoy’s government wants to keep old coal stations open when there is plenty of margin. The motivation on the part of Endesa could be to further milk old assets (oh & remind me – how is ETS doing these days? – “putting a price on CO2” is it?) . The desire of the Ratjoy gov’ to keep these stations open is less clear.
I understand that there are a very large number of bribery and corruption cases against Ratjoy’s party going (very) slowly through the Spanish courts (in contrast to the cases against the Catalans – funny that). One could of course speculate on the Royal decree and any quid pro quo link to Endesa, party contributions etc etc. As I said, one could speculate.
onesecond says
Another example of a conservative government wanting to hand out tax payer money to their fossil fuel buddies despite bodies like the CNMC that actually look at the electricity market telling them that it flies in the face of reason and that it would be a huge waste of money.