2019 seems the year in which the climatic emergency rises in the scale of concerns in the so-called developed world. The headlines range from apocalyptic alarmism to those who deny that we have any kind of responsibility in the process. In this scenario, governments announce increasingly ambitious and close decarbonization and sustainability objectives. However, at each announcement, the questions continue to accumulate, and the answers seem to dilute (How do we do it? Who will do it? When will we start? … How much will it cost us? … Who will pay it?)

And in Spain it seems that it takes us with his foot changed, without government and suffering a worrying legislative break. Among many of the announcements made this year, and to start somewhere, we have the 2030 objectives for the energy sector. To achieve these objectives, we will need about 200,000 million euros investment. Of which 75% must come from private capital. I discover nothing when I say that, if we intend to attract all this capital, we will need to give clear signs of leadership and a stable regulatory framework. Therefore, the POLICY & POLITICS duet are the key to its achievement. However, we still don’t have a government today and the one that could result will be of extreme weakness. This will make negotiations more complicated to establish the necessary regulation for these objectives.

What is the situation on the peninsula and what has the Government done so far? The change of government in Spain in June 2018 opened the door to the energy transition demanded by broad sectors. The diagnosis of the experts is that the energy situation in Spain was and remains unsustainable a year and a half later. Ten are the main points where they have tried making decisions:

  1. Creation of the National Integrated Energy and Climate Plan 2021-2030, which seeks to identify the challenges and opportunities throughout the five dimensions of the Energy Union:
    • decarbonization
    • energy efficiency
    • energy security
    • the internal energy market
    • Research, innovation and competitiveness.

The Plan also seeks the necessary signals to provide certainty and sense of direction to all actors.

  1. Repeal of the sun tax (RDL 15/2018) and complete the regulatory framework for self-consumption (Royal Decree 244/2019)
  2. Boosting renewables (auctions)
  3. European single market policy (winter package)
  4. Debate on the nuclear park (Phase-out)
  5. Debate on coal-fired plants (Phase-out)
  6. Debate on thermal power plants
  7. Reforms on the electricity market
  8. Environmental taxation
  9. Electrification of industry and transport

This is the scenario in which consumers and businesses must make decisions. Decisions that often require long-term commitments. A “long term” full of uncertainties and therefore risks.

But as we say in Magnus, the market is global and does not wait for anyone. Either Spain faces with conviction and determination the challenges of this transition or will end up undermining confidence in the institution and what is worse is losing competitiveness in a scenario of strong commitment to innovation and change.

We could summarize the challenges we face in these 4 points:

  1. Legislation: As we have said several times before, we are closing the 2007-2020 legislative package and in less than a month the period corresponding to the winter package (4th energy package) opens. We are at the doorstep of an avalanche of changes in our market: generation mix, prosumers, capacity mechanisms, taxation, etc. There is a great expectation on the part of all the actors. Regarding Spain, the real decrees of self-consumption and remuneration for renewables, despite being late and incomplete, have been applauded. However, we are still pending regulations for capacity markets, auction systems for the coming years, regulations for the cogeneration sector or the long-awaited energy law for electro-intensive companies.
  2. Renewables: Without a doubt there is an avalanche of projects (Talk about bubble again) The projects presented, and theoretically in process, far exceed the objectives of the PNIEC by 2030. However, with all the uncertainties that exist in the regulatory and energy model, the general feeling is that there is some speculation in the sector. The objectives of renewables in the coming years pass, not only by installing solar and wind plants, but aspects such as geographical distribution, integration with traditional generation, participation in capacity systems, saturation of grid points must be defined, the development of the network, etc. A non-organized growth in this aspect can have an impact on an expensive system. Unfortunately, we come from a similar situation and we have to be cautious. This transition has very ambitious goals, but they must be achieved in a structured way. Regulations and planning will be the key. Despite this, bear in mind that Europe and therefore Spain will continue to consume hydrocarbons and we will be exposed to these fuels.
  3. Self-consumption, storage, Hydrogen, Hybridization: We have been with these issues for months, if not years, and we know in advance that they will be part of the solution to the 2030-2050 objectives. In some cases, it seems that it is already deploying (self-consumption) and in others there is still no movement. The general feeling is that solutions based on storage and hydrogen are still not competitive enough in a mass scale. The costs are high, and the argument remains that its competitiveness continues to improve day by day, or project by project. In my opinion, it is still early for the industry to invest in a “serious” way in this type of technology. In the coming years they will have to do it, for sure, but right now the feeling is that those who invest now will help to make this type of solutions more profitable soon. A lot of caution with the so called “innovative” projects. It is necessary to go into the detail of this.
  4. Wholesale market: Perhaps the part that I like the most and the one that surprises me the least despite everything. Despite the high expectations, the main actors already say that the arrival of renewables does NOT mean that prices will fall dramatically. What is going to happen is that it will have more “diversity” in prices. Surely more volatility too. The price difference between hours of more renewable generation and those of less will be much larger. Electric vehicles, large renewable generation and electrification of the industry will require a very short-term management market. The management of intraday, continuous market and capacity mechanisms will be the key. The PPAs will be part of the market, understanding that it is a tool for diversification by the Off-Taker, we must see it as a long-term coverage.

With this panorama, what should I have to do?

First of all, being informed is the key. Understanding the regulatory framework in which we are and the one we need will help to understand and limit the risks. On the other hand, identify the level of technological maturity of some solutions that seem to promise “Eldorado”. We are being bombarded by advertisements and articles from interested companies. Let us always ask ourselves, to whom those interests respond.

Run away from decisions made based on the ability to predict. Despite all the above, decisions must be made, we do not recommend being mere spectators. The scenario is not very different from the one that energy markets have always raised and that involves making decisions in an uncertain environment. Therefore, the keys lie in knowledge and diversification. Betting prematurely on a solution can be as bad as doing nothing.

Alejandro De Roca | Energy Consultant

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