Market News

What will become of Spain’s visionary green energy plan?

02nd April 2019

In 2018, the EU announced its aim to become ‘climate neutral’ by 2050 and set ambitious targets that would see a reduction of between 80 to 95% of greenhouse gas emissions.  One means by which they hope to get there is by ramping up reliance on renewable sources of electricity.  Spain was one country to fully embrace these targets and even went above and beyond EU expectations in its bold green energy plan publicised at the end of last year.

The plan – known as the Climate Change and Energy Transition Law – would see emissions cut by 90%, and 100% of electricity being sourced from renewables, by 2050.  The Spanish government has approved the draft proposal for the climate change bill that would put the plan into effect – despite the recently announced upcoming general election.  Whilst the ultimate fate of this particular bill hangs in the balance now, there are plenty of reasons to remain optimistic about the future of renewables in Spain.

The sector grew significantly in the past two years: Renewables made up 33.7% of Spain’s total installed capacity in 2017, and this shot up to 46.3% by the end of 2018.  Furthermore, its typically sunny skies – Spain averages 2,000 hours of sun annually, compared with 1,200 in the UK, which means that a 10MW solar power plant that could produce 10,200MWh in the UK, would produce 17,000MWh in Spain – means that with all else being equal, renewables investments in Spain should pay relatively well.  And whilst all is not quite equal yet, prices at recent public auctions have demonstrated that grid parity is a realistic prospect.

Prospective investors in Spanish renewables will also be encouraged by the introduction of Power Purchase Agreements (PPAs) – a trusted means of mitigating the risks associated with the inherent volatility of renewable energy prices.  The first PPAs to be agreed in Spain were entered into in early 2017 and since, many short-term, mid-term and long-term PPAs have been executed, covering more than 1,500MW and some of them covering durations as long as 15 years. The offtakers under these agreements tend to be energy trading companies such as Nexus, Viesgo, Axpo, Statkraft, Cox Energy or entities with roles similar to DNOs such as Iberdrola, Endesa and EDP. Furthermore, new legislation allows power producers to enter into PPAs directly with consumers.

Another promising sign for the renewables sector is the news that the Red Eléctrica Española – the Spanish National Grid – has plans to adapt its existing infrastructure to support increasingly diversified, distributed generation over which it would be able to exercise high levels of control.  The plan is premised on the basis that there will be a hike in the number of renewable generators being connected to the grid, which the system would need to ready itself for.

The main challenges facing the Spanish National Grid, and that will need to be tackled by its plans, will be its ability to cover certain expected increases in energy demand, due to developments such as the use of electric cars; its ability to continue to control and supervise distributed generation in the face of new technologies; Fluctuations in renewable production levels and unpredictability; Managing renewable energy contribution to the ancillary services of the system; the need to improving the infrastructure of the grid to facilitate the connection of larger scale plants; and managing developments in the Europe-wide grid interconnection.

At QE, we expect to see a lot of movement in the Spanish energy market and take the view that renewable generation will improve the current market.  The factors that will be key in determining the evolution of this improvement will be how quickly the existing infrastructure is adapted to meet the requirements of a fluctuating energy source.  As well as changes to the grid itself, it is possible that new technologies such as energy storage will play a role in adapting the current system.  Owners will also have to find ways to manage and optimise production and output and we expect that production forecasting will be an essential tool in achieving this.

Whilst the upcoming election in April may cast a shadow over the green legislation drafted by the current government, EU and international targets will not go away and the next Spanish government will have to find a way to meet them.  Given the positive developments of recent years, and an increased global focus on tackling climate change, we foresee a bright future for renewables in Spain.

At QE, we provide expert advisory services in the area of production forecasting as well as asset management services in Spain.  If you would like to speak to us about this, or any related matter, please contact Irene Reyes, our Head of Engineering, via the enquiries section of our website.

 


This article is written and edited by Shirine Azzi. She can be contacted at: shirine.azzi@quintasenergy.com

 

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