In a context of economic contraction, where the debate is centred on whether or not the crisis will turn into a recession, the installed capacity of our generation stock continues to grow as a result of the wave of new renewable generation and the promise of electrification of industry and transport.
Evolution of electricity demand
The annual demand for electricity in Spain, with REE forecasts for Nov and Dec 2019, is 250,136 GWh. It represents a variation of -1.36% with respect to 2018, thus breaking the growth trend that began in 2015. In any case, despite the economic variations what is clear is that there is an increasing tendency to reduce electricity demand, energy efficiency measures and increasingly demanding objectives influence the decrease in demand, as well as other factors.
Source: own calculation date REE
It is true that electrification of industry and transport will have an impact on demand, but in the longer term.
Annual variation in peninsular electricity demand and GDP
In the graph below we can see the relationship between economic growth and the variation in demand. Both variables have a very high correlation, with GDP variation being a leading indicator of variations in electricity consumption. Therefore, a variation in economic growth translates into a variation in electricity demand in the following quarter.
Source: own calculation date REE and INE
It is true that during the last year there has been a decoupling between both variables. This means that economic growth remains more or less constant while electricity consumption decreases. This situation usually occurs when the sectors that maintain growth are not electricity-intensive, such as the service sector.
The EU, the IMF and the WB forecasts, among others, show a contraction of the economy with growth rates that are still positive, but with downward corrections in practically all the revisions carried out more than a year ago.
Source: European Economic Forecast
On the other hand, while our economy contracts and demand decreases, installed capacity grows exponentially and this situation is reminiscent of 2008, when energy planning did not take into account the prospects for economic growth.
What is the current situation?
It is true that the government’s plans take into account the dismantling of traditional thermal power stations by 2025 and the non-prolongation of the useful life of the nuclear plant, as we well indicated in the blog “The 2021-2030 Energy Transition Plan”. Coal accounts for 10 GW of installed power, and so far, this year has not even accounted for 5% of total generation, nuclear which accounts for 7.4 GW has accounted for 23.5% of generation.
Source: own calculation date PNEC 2021-2030
But by 2025 all the nuclear plants will still be operational and coal today means just over 10 GW of installed power, and this year the operation of these plants has been almost nil so far this year.
The Government’s plans were aimed at reaching 40 GW of wind and 23 GW of solar in terms of installed power by 2025.
According to REE data as of September 30, there are 90 GW of generation between wind and solar photovoltaic with access permits awaiting connection by REE.
The operating hours of wind were around 2,000 in 2018 and solar photovoltaic around 1,500, if we apply the operating hours of 2018 to this power and taking into account that these technologies would match in the daily market before others that enter with a higher price, the energy balance would have to displace 17,450 GWh of other technology, which, if manageable, would be necessary to cover the system at certain times.
What happened whit CCTG’s from 2008?
In 2002 the installation of combined cycles began in Spain, and the installation of these thermal power plants continued until 2010.the reasons were obvious: the relatively low investment cost, the speed of the installation period in relation to other types of plants, the capacity to modulate generation and, above all, the forecasts: the increase in demand that would make their operation necessary.
As we showed at the beginning, in 2008 began to contract the demand for electricity caused by the economic crisis, all this coupled with the increase in power in special regime associated with the aid that was given in that period caused the perfect storm to oversize the parquet generation, as a result of this, the thermal gap contracted.
The Coverage ratio
The coverage ratio is an indicator that measures the system’s ability to cope with peaks in demand. It is calculated as:
With a coverage ratio of 1.1 in our system, it would be enough to guarantee the supply of demand in extreme conditions.
The latest report of the CNMC “SPANISH ENERGY REGULATOR’S NATIONAL REPORT TO THE EUROPEAN COMMISSION 2018” shows the forecasts of this index for peak demand for 2020:
The CNMC uses an assumption, with a central scenario demand forecast of 277,700 GWh per year by 2020, which would mean an 11.2% increase in demand compared to 2019.
The CNMC assumptions for installed capacity are as follows:
The increase in installed renewable power within the system would vary the installed power available by 2020.
The fact is that the latest REE report shows a coverage index in 2018 of 1.46, which is the maximum value in the last 10 years.
Source: REE “Report on the Spanish Electricity System 2018”
The current situation is characterized by a slowdown in growth, however, increases the installed power of renewables in the very short term within the system, which raises many doubts and considerable uncertainty about the near future of the electricity system.
Is our electrical system oversized? Will the CCTG’s be displaced again in the generation mix?
Are the 2030 energy plans taking into account the contraction of the economy and the increase in power already with access permission?
In the next few years we will see the answers to these questions, but if something does a maladjusted system is to show signs of excess or lack and therefore additional costs that some of the actors in the system will have to face (generation, transport, distribution or final consumer).
Marta Serrano | Energy Consultant