The Spanish power grid is considered a legal oligopoly, with the most significant five large companies dominating 84.9% of the market in 2019. Following global trends, the national power grid was largely decentralized and partly liberalized in 1997, separating its generation, transmission, distribution, and supply components. While transmission and distribution remained in complete government control, electricity generation and supply are open to market competition. The regulated components of the power grid are heavily top-down orientated, with the central government exercising near-full control over energy policy for Spain’s 17 autonomous communities.
Aligning with the EU’s green transition for carbon neutrality by 2050, the Spanish power grid will see a phasing out of all coal plants by 2025 and the closing of all nuclear power stations by 2030. Spain has also set out an ambitious plan to satisfy a 74% and 42% share of renewables in electricity generation and energy end-use, respectively, by 2030. In terms of the power grid’s carbon intensity, an accumulating share of renewables and decommissioning of coal plants has reduced system carbon emissions by 30 million tons between 2015 and 2019.
The scale of the rapid roll-out of renewable generation while phasing out conventional sources will challenge the national power grid’s capacity for energy security. Despite wind power representing the most significant source of electricity generation in 2019, at 23.3%, the grid still heavily relies on nuclear power, generating 21% the same year. The inherent intermittency of renewable generation, owing to seasonal discrepancies in the wind and sunlight hours, will subsequently require an additional 65GW of renewables to satisfy the phasing out of 16GW of conventional sources, coupled with robust energy storage to ensure all-year physical adequacy (the capacity of system generation to meet sufficient levels of generation and transmission). The central government acknowledges the challenges presented by renewable intermittency and has committed to ramping up national energy storage capacity through pumped hydrogen storage facilities (PHS), electric batteries for photovoltaic power, and thermal energy storage (TES), aiming to reach a 20GW storage capacity by 2030.
An additional challenge for Spain’s energy security is the relatively inadequate state of its international connectivity. Spain failed to achieve an EU-wide target for member states to meet a minimum interaction ratio of 10% by 2020, with a meagre ratio of 6%. Spanish authorities have since set out an ambitious plan to reach 15% by 2030, mainly through planned connectivity with France and Portugal. Greater connectivity would act as a robust tool for improving physical adequacy by strengthening overall system resilience to address unforeseen system failures.
The government’s successes in securing Spain’s position as a global leader in renewables have largely obscured its dire social and economic failure, notably the system’s ineligibility to deliver affordable energy. Although officially exhibiting one of the lowest electricity tax brackets compared to members of the International Energy Agency (IEA), 5% for industrial users and 21% for households, a maze of hidden taxes inflates these margins to 58% for industrial users and 48.5% for households. Poor legislation coupled with Spain’s oligopoly and rent-seeking market behaviour has been widely implicated in leading to the astronomical cost of electricity. High prices left 11% of the Spanish population unable to warm their homes in 2020, and projections of a 4.6 times price rise by 2025 would see Spain failing to meet the EU’s ‘clean energy for all Europeans’ 2019-2024 package.
In 2019, Spain also began legislative and economic efforts to develop self-generation and consumption, mainly through private ownership of photovoltaic systems. This trend corresponds to the EU commission’s vision of creating local energy communities (LEC) to contribute to the green transition, allowing bottom-up generation, consumption, and storage. Self-consumption would alleviate the institutional and economic burden from the central government, allowing communities to generate their electricity and feed the excess back to the grid while also dampening the impact of monopolistic prices.
Encouragingly, Spain’s central government unveiled a 6.9-billion-euro 2021-2026 revamp and development of the national power grid to foster and accommodate its rapid renewable roll-out and overall system improvement, including the construction of 2,700km of new lines, 700km of submarine interconnection and the renovation of 8000 km of existing lines.
Spain is to witness remarkable changes in its power grid in the years leading to 2030. Although the government has acknowledged the fragilities of intense renewable development while phasing out conventional sources, plans to overcome these challenges remain to be seen.
This Post was submitted by Climate Scorecard Spain Country Manager Sean Lewis