Friday, March 1

The drawbacks of Spain and Portugal being an energy island


JUAN JOSE COBLE CASTRO Director of the Master in Renewable Energies and Energy Efficiency, Nebrija University

The inhabitants of an island know what they are exposed to: their territory will end at some point, they walk in the direction they walk and they will end up in the sea; their resources are limited and they must manage them very well. If the island is well connected by sea and has abundant trade with its neighbors, it will be able to maintain a certain balance over time. But what if it doesn’t have as much foreign trade as it should? What happens if one of the products you buy suddenly becomes scarce abroad and seriously affects your inflation?

This brief description applied to energy resources becomes quite unique in the Iberian Peninsula. Although they are considered an energy island, Spain and Portugal (the principality of Andorra included) are not an island geographically speaking. They form a peninsula, and this introduces differences in the scenery.

Spain has electrical interconnections with Portugal, Andorra, Morocco and France, as we know and we know from the annual reports presented by Red Eléctrica. But looking at northern Europe, we see that our only interconnection (as the Iberian Peninsula) is established directly with France, through the border and the Pyrenees. We are almost alone, but not isolated.

Cross-border electricity interconnections in Spain and Portugal. European Association for the Cooperation of Electricity Transmission Network Operators. /

(ENTSO-E)

Increase electrical interconnections

As early as 2002, the EU recommended that member countries expand their electrical interconnections until they reach at least 10% of their installed capacity. This value was revised upwards in 2014 and it was proposed to reach 15% in 2030.

Despite these recommendations, the five current links established with France, through the border with our country, add up to 2.8% (about 2,800 MW) of the country’s energy capacity (above 100,000 MW). Spain remains far from its commitment to its consumers and to the EU, despite the fact that Red Eléctrica has been demanding for years the expansion of existing interconnections.

In short, not only do we have a low capacity for energy exchange with other European countries because it is a peninsula, but also because our current level of interconnection with our northern neighbors is quite low.

Increasing the electrical interconnection capacity between countries will facilitate support between neighboring electrical systems; it makes it possible to offset the deficits of one with the surpluses of the other, agreeing on reasonable exchange prices.

On the other hand, it increases security of supply, in the face of service interruption episodes within a country due to breakdowns, scheduled or unscheduled unavailability, etc. And most importantly, it allows electricity to go from where it is cheapest to produce to where its price is highest, reducing the price by facilitating commercial exchanges of electricity and increasing competition.

But surely the most important benefit of all is that electrical interconnections integrate renewable energies much better into the system. Thus, the renewable energy that a given country produces and does not consume is fed into the network and can be used by other countries.

On the other hand, France, with all the nuclear capacity it has, could (if necessary) act as a backup for others that have a lot of renewables (such as Spain).

What happens in the case of gas?

The EU seeks to reduce its dependence on Russian gas, and at this point, again, Spain could play an important role for the rest of Europe if the necessary changes are made.

Currently, Spain has about a third of the regasification capacity in all of Europe and a very high storage capacity, but its export capacity is very limited. The country only has two interconnections with France, through Larrau (Navarra) and Irún (Guipúzcoa), which allow the delivery of some 8,000 million cubic meters of gas annually, which represents only 4.5% of gas imports Russian EU (155 billion cubic meters).

For all these reasons, there is now great interest in reviving the MidCat project, a gas pipeline between Spain and France that would increase the gas interconnection capacity to 17 billion cubic meters, a figure that would still be far from covering all imports of Russian gas.

Despite these deficits, Spain and Portugal have taken a big step by obtaining the status of energy island by the EU. We must congratulate the negotiating capacity of both countries and their leaders. However, one matter of paramount importance remains to be addressed. Within the peninsula, do the rises in gas affect Spain and Portugal in the same way?

Asymmetries between neighbors

As Albino Prada indicates, as soon as a little research is done, it is discovered that the peninsula is asymmetrical in this sense.

Since September of last year, Spain has entered into a practically permanent inflationary trend in the price of electricity. This increase in prices is mainly due to the impact of the rising price of gas on the market and the rise in emission rights on financial gateways.

But there is an asymmetry problem here that has not been explained at all. While in July 2021, the CPI in the EU as a whole rose to 8.5% according to Eurostat, in Spain it rose to the alarming figure of 26.9%. This is even more unusual when the contribution of natural gas to the generation mix is ​​very similar in both cases.

The issue worsens if the terms of comparison are established with Portugal. For the same dates, electricity rose in Spain by 26.9%, while for our peninsular neighbors it rose less than one percent. And here there are no traps, in both cases all the gas burned to produce electricity is imported by both countries. Clearly, there is more below the surface than meets the eye, and there are things the two countries do not share even within their isolation.

The difference could be attributed to the fact that our use and consumption of fossil fuels to produce electricity in the electricity mix doubles that of Portugal on average. But this could only, if anything, raise our inflation to twice or more, but not to that unbearable 26.9%. Comparing the figures with other EU countries leads us to also very large differences.

The most recent data, from February 2022, only add salt to the wound. This asymmetry between neighbors shows how in Spain we reached 80% of electricity inflation, while in Portugal that rise was only 5.6% and the European Union average was 28%.

Part of this difference can be explained by the different types of contracts that most consumers have in both countries. Close to 85% of the Portuguese have an agreed price with the marketers at the end of the year and for the entire following year. That is why the invoice does not register increases or decreases. They pay a constant amount month to month. In Spain this is not the case. Nearly 50% of Spaniards are governed by the regulated market, which suffers more directly and intensely from the daily fluctuations in the price of electricity.

Limit price gouging

We may be on an island, but even among the inhabitants of that island there are excessive and insufficiently explained inequalities. There are regulators and other national institutions that should have ruled on this and have not yet done so.

Portugal and other countries around the EU, which have a higher consumption of natural gas, which have equal or greater dependence on these fossil fuels abroad and which use the same marginal formula of wholesale prices, show that it is possible to hold the rise in electricity prices on much larger scales. However, Spain seems not to know, not be able or not want to intervene in this situation in the same way as our neighbors, even with Russia’s military clash with Ukraine on the table, and the foreign supply problems that this entails.

It may be that the short-term vision of quick and substantial profit, in such serious times, is the predominant note in some business behaviors, but let us remember that we are talking about solving a problem in terms of the country, and that includes many millions of Spaniards, not just a few.

And let us also remember that the inflation of energy prices has repercussions not only on hundreds of products and services, but also, and through them, on the already diminished economic scope of each citizen.

This article has been published in ‘The Conversation‘.


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