Could Spain be on course for further energy market reforms?
There are signs that Spain’s energy market reform might not be working. If so, the government may need to consider further changes as it heads towards elections.
By Jason Deign
Spanish energy watchers are on alert for further changes to Spain’s devastating energy reform following early indicators that the new regulatory framework is not working.
Some observers have claimed the country’s beleaguered administration may be forced to act as electricity prices continue to rise in spite of measures aimed at doing away with Spain’s tariff deficit and lowering power bills.
“I bet that in the coming days we are going to see new regulatory changes,” wrote Jorge Morales de Labra, the media-friendly general director of GeoAtlanter, a renewable energy investment firm, in a blog post in January.
January bills were up 3.2% on December 2014 rates and 18% above the level 12 months previous. Mid-February, bills looked set to drop by about 6.5% on January levels but were predicted to end up 106% higher than the same period in 2014.
Somewhat ironically for an administration that has single-handedly demolished the country’s renewable energy sector, Spain’s Minister for Industry, Energy and Tourism, José Manuel Soria López, blamed the January uptick on a lack of renewables, particularly wind and hydro.
However, noted Morales, January hydro reserves in Spain were actually more than 10% above the average for the last 10 years. The culprit was not low production, he said, but an unintended consequence of the energy reform that came into effect in June 2014.
“As well as brutally cutting the income for renewable plants,” he wrote in his blog, “it has basically made them fixed, independent of the volume of energy generated. The incentive to produce more when it is needed is thus nil.”
As a result, Morales argued, utilities were now more likely to resort choose fossil-fuel generation over renewables within their portfolio. Utilisation of Spanish combined-cycle gas plants is notoriously low, at about 14% in 2013, which is a problem for the power companies.
Renewable generation
On top of this, said Morales, a significant amount of renewable generation in Spain that used to essentially feed power into the grid for free, after receiving a feed-in tariff, now no longer gets any form of support and instead sells power at market prices.
“The disastrous renewables regulation that was put in place in 2014 is paradoxically jeopardising the government’s strategy to reduce the price of energy in an election year,” Morales surmised.
If his analysis is correct then it could put Spain’s ruling People’s Party (‘Partido Popular’ or PP in Spanish) in an uncomfortable situation.
The party, which swept to power with an absolute majority in 2011, has come under fire for its handling of a financial crisis which has left around a quarter of the population jobless.
Further increases to electricity bills, already among the highest in Europe, are likely to fan the flames of dissent among voters already massing towards Podemos, a Syriza-style far-left party, or Ciudadanos, a group occupying the same centre-right ground as the PP.
The obvious answer might be further reforms, although such a move could represent a perilous admission of error in a year when the administration cannot afford to put a foot wrong.
While surveys still put the PP ahead of other parties in the race to win national elections at the end of this year, the administration only has a 3.4% lead over Podemos, which has been in existence for little more than a year.
Current legislation
At this point it is too early to say for certain whether Soria’s ministry will be forced to tweak its current legislation, and if so whether that might benefit the CSP industry or not.
Dr Luis Crespo of the Spanish CSP industry body Protermosolar, which is fighting the regulation in Spain’s Supreme Court in one of more than 300 court cases underway against the law, says it is doubtful the government will take action.
Others are not so clear, however. “There are still some challenges for the Spanish government to tackle this year that would define whether there is need to introduce further sector reforms,” said Mariano Salto, a principal economist at Mott MacDonald, the global consultancy.
“The system deficit is still an open issue that needs to be tackled and there are several areas where the government will need to act, including introducing smart metering for small users and offering price incentives for interruptible load.”
Furthermore, Spain’s annual power generation profile looks unlikely to do Soria any favours. “Wholesale prices in Spain are very volatile due to the large renewable energy source penetration and seasonality component of hydropower,” explained Salto.
“Hydropower generation is usually very strong during the first quarter of the year and this helps to maintain electricity prices at lower levels. This situation reverses later in the year where more conventional generation is needed to replace reduced hydropower availability.”
Higher prices later this year is the last thing Soria needs. Will he do anything about it, though?