Third period of the Spanish electricity market (2015-2019): current stage
AleaSoft, October 30, 2019. In this new instalment of the series of articles that AleaSoft is publishing to celebrate its 20th anniversary, the last years of the Spanish electricity market are reviewed, once the crisis is over and until the present. In this period the decarbonisation of the electricity sector begins to gain prominence, with the increase in the energy efficiency, the installation of new renewable wind and photovoltaic capacity, the increase in the CO2 prices and the fall in the energy production with coal.
AleaSoft is publishing a series of articles on the Spanish electricity market to celebrate its 20th anniversary as a leader in the field of the forecasts for the energy sector. After analysing the market in the years before the crisis and during the crisis, this time the analysis focuses on the years after the crisis, starting in 2015.
Spanish electricity market prices
The trend of the price of the MIBEL market of Spain from 2015 was increasing, except for the fall in 2016, unlike the last years of the 2009‑2014 period when it remained very stable. From 2015 to 2018, the average prices were above €50/MWh almost every year, except in 2016, which with an average of €39.67/MWh was the minimum for this period. In 2019, until October 30, the average price was €49.64/MWh.
The first signs of the recovery of the crisis were seen in 2015, when the electricity demand increased compared to the previous year for the first time since 2011, being one of the main factors in the rise in market prices. The increase in the demand and the fall in the hydroelectric energy production favoured the rise of almost 20% of the price of the electricity market.
During the following year, 2016, the price plummeted to €39.67/MWh, down 21% following the steps of the prices of the CO2 emission rights, the Brent and the gas, that fell in similar proportions. This annual price, which was even lower than the prices of a large part of the crisis period, was also influenced by a rise in the renewable energy production of 7.5%, mainly the hydroelectric energy production, by 27%, with 2016 being the year of the greatest hydroelectric energy production in this period.
Already in 2017, the jumps given by the prices of the Brent, the gas and the coal and by the thermal gap caused the price of the MIBEL market to resume values above €50/MWh, reaching €52.24/MWh.
The year 2018 was marked by the significant increase in the price of the CO2 emission rights to €15.94/t of annual average, the highest since 2009. This behaviour, supported by the prices of Brent, gas and coal, offset the 84% rise in the hydroelectric energy production and the renewable energy production in general, bringing the electricity market price to €57.29/MWh.
In the first nine months of 2019, the average price decreased by 9.9% compared to the average price of the same months of 2018, thanks to the decrease in gas, coal and Brent prices, the decrease in the coal energy production and the increase in the production with renewable energies, mainly the solar photovoltaic and solar thermal energies.
Although in the last four years and so far in 2019 there were no zero hourly prices, the minimum value for this period was the hourly price of €2.30/MWh, which was first obtained at hours 6 and 7 of January 10, 2017, and then repeated at other times of January, February and May of the same year. The maximum hourly value since 2015 was reached at hour 21 of January 25, 2017 and was €101.99/MWh.
As for the coupling between Spain and Portugal, in this period it was greater than in the years of the crisis, with a total value between 2015‑2018 of 94%. In this stage, 2015 was the year with more coupling, when during the 97% of the hours the same price was registered in the markets of both countries. Another aspect that benefited the Spanish electricity system was the electricity interconnection with France by the East of the Pyrenees, which began operating on October 5, 2015. In 2016, the coupling between Spain and France was 30% and remained over 24% the following two years.
The emergence of a new electricity market, the European continuous intraday market (XBID), which began its operation on June 12, 2018, constituted at this stage an important step for the advance in the coupling of the European electricity systems to achieve a single and integrated European market.
Electricity market price and inflation
During the years of the recovery of the economic crisis in Spain, between 2015 and 2018, the consumer price index (CPI) increased 3.5%. This increase was basically between 2016 and 2018, because between 2015 and 2016 there was a slight decrease in the CPI of 0.2%.
Between 2015 and 2018, the price of the Spanish electricity market registered an increase of 14% which, once corrected the effect of the inflation, drops to 10%.
At the end of this series of AleaSoft articles on the evolution of the Spanish electricity market, now looking at the entire history of the market, from 1998 to 2018, the price increase was 129%, from €25.06/MWh in 1998 to €57.29/MWh in 2018. Taking into account that during these twenty years the accumulated price inflation stands at 55%, the real price growth of the electricity market was 48%.
If we try to smooth the year‑to‑year fluctuations due to the variations in the production with renewable energies and the temporary fluctuations in the fuel prices, looking at the trend in the annual average price and correcting for the inflation of the consumer prices, the price increase of the market is around 18%.
Electricity demand of Mainland Spain
With the economic recovery since 2015, the electricity demand of Mainland Spain regained its growth trend at a more moderate pace compared to the increase in GDP. For that year, the demand recovered by 2.0% compared to the previous year, while the GDP had a recovery of 3.6%, being these the highest growths recorded between 2015 and 2018. In 2016, the growth in the demand had a small deceleration, increasing only 0.7% compared to the previous year, while in 2017 the increase was 1.1%. In the analysed period, the year 2018 was the one with the lowest growth in demand and GDP, being 0.4% and 2.6% respectively.
So far this year, until September 2019, the demand decreased by 2.0% compared to the same period last year.
Despite the recovery in the demand growth, in 2018 it continued to be 4.6% lower than the one registered in 2008, while the GDP exceeded the index registered for that same year in 2017. During the period from 2015 to 2018, the electricity demand in Mainland Spain only grew 2.3%, while GDP grew 9.0%. This difference in growth evidences an increase in energy efficiency that was adopted after the economic crisis, leading to a reduction in energy intensity, which is an indicator of the energy use and how efficient a country is when producing goods and services. The energy intensity relates the energy consumption to the GDP, to determine how much energy is needed to produce the country’s wealth.
Installed capacity and energy production per technology in Mainland Spain
After the crisis, the pace of installation of new capacity for the generation of electricity in Spain continued to be very discreet. During this period, the fastest growing technology continued to be the wind energy. Between 2015 and 2018, 242.50 MW of wind power capacity were installed in Spain. In the solar energy sector, the growth occurred in the photovoltaic technology, which installed 30.88 MW of new capacity, while no new generation capacity was installed with solar thermal technology. Finally, the third and last electricity generation technology that registered an increase in its installed capacity in the period was the hydroelectric energy, with 19.91 MW. In this way, all the installed capacity during the period analysed in Mainland Spain was of non‑polluting energy.
On the other hand, while the previous technologies increased their presence in the market, other technologies reduced their generation capacity. The largest sample is the coal generation, which in 2016 reduced almost 1 GW of capacity, specifically 932.15 MW. It is followed by the nuclear energy, whose installed capacity decreased by around 460 MW. However, this reduction in this period is symbolic, since it is the Santa María de Garoña nuclear power plant, which stopped in 2012 and that received the refusal of the renewal for its exploitation authorisation on August 1, 2017. It is therefore on that date that the decrease in installed nuclear energy capacity is recorded, but this plant had not participated in the Spanish generation mix for five years. Finally, the other technologies that declined in generation capacity are the cogeneration and the combined cycle gas turbines, which withdrew 426.39 MW and 385.85 MW from the park, respectively during this period.
In general, during this period the main sources of electricity generation did not change. The fundamental leap is in 2019. It should be noted that so far in 2019, Spain installed more than 2 GW of electricity generation capacity from renewable sources. Of this figure, more than 1.5 GW are of solar photovoltaic energy. The vertiginous increase of this technology is due to the fact that the cheapening of the photovoltaic installations made this technology profitable to operate in the market, as well as the impulse to the renewable energies of the Integrated National Energy and Climate Plan (NECP) and the Royal Decree regulating the electricity self‑consumption.
The production of electricity with each technology in this period has a behaviour similar to that of the installed capacity. Very little change in general, except for the removal of coal, which is the most appreciable change. Regarding the generation with nuclear energy, it is observed that in spite of decreasing the installed capacity, the generation does not vary appreciably in these years because, as previously stated, it was a plant that was stopped for several years.
So far in 2019 there was a significant increase in the production with combined cycle gas turbines to the detriment of the coal energy production. According to REE data, until October 29 of this year, the increase in production with combined cycle gas turbines compared to the same period of last year was 120% while the coal fell by 65%. The hydroelectric energy production and the pumping turbination also decreased during this year, 41% and 33% respectively. On the other hand, the solar energy production, both photovoltaic and solar thermal, increased by 18% and 19% respectively. So far in 2019, more energy was produced with solar energy than with coal for the first time in history and everything seems to indicate that it will remain in this way once the year is over.
During the period from 2015 to 2018, the international energy exchanges were influenced by numerous factors that modified the export behaviour of previous stages. One of the most important events was the beginning of the commercial operation of the new Santa Llogaia‑Baixas interconnection, on October 5, 2015. This interconnection doubled the commercial exchange capacity between Spain and France. Thus, the imports from France were increasing throughout this period because the prices of the electricity market in France were generally lower than those in Spain. Also in this period the exchange with Portugal went from being exporter to being mainly importer, which occurred due to the increase in the wind and hydroelectric energy production in Portugal. Another aspect that increased the prices of the Spanish electricity market, and therefore increased the imports from France and Portugal, was the introduction of the 7% tax on generation and the “green tax” or Special Tax on Hydrocarbons at the beginning of 2013. To all of the above, it is added that, although the annual exchange balance towards Morocco was exporter during the whole period, it decreased compared to previous periods. One of the fundamental causes of this decrease was the numerous unavailability of the Moroccan system grid that led to a reduction in export capacity.
The decrease in the exchange towards Morocco, the increase in imports from France and the modification of the sense in the exchange with Portugal caused that during this period the balances of the international energy exchanges of the Mainland Spain’s electricity system ceased to be exporters and passed to be importers.
So far in 2019 there were some changes compared to what had happened in this period until 2018. Although the balance of the international interconnections remains importer, there was a 41% decrease until September 2019 compared to the same period from last year.
There are several reasons for this decline. During this period, the sense of the interconnection between Spain and Portugal changed again and Spain exported to Portugal. The exemption of the “green tax” to the combined cycle gas turbines and the suspension for six months of the 7% tax on generation, between October 2018 and March 2019, allowed the Spanish generation plants to be more competitive, which is an element that favoured this change of direction. In the case of the interconnection with France, although the sense remains importer, in the first nine months of this year there was a fall of 19%, mainly due to the work carried out in the Cantegrit‑Argia‑Hernani interconnection cable, which links France and Spain in the Basque Country, which meant a decrease in the interconnection capacity. Also the interconnection with Morocco, historically with an export balance, during the first three quarters of the year became an import balance. This change occurred after Morocco put into operation, at the end of 2018, a coal‑fired power plant with which the prices were more competitive than in Spain.
Brent, fuels and CO2
In 2015, the Brent oil prices continued with the downward trend of 2013 and 2014. The annual average price was $52.39/bbl, 47% lower than the 2014 price, of $99.02/bbl. In 2016, the average price continued to decline to $43.56/bbl, which is the minimum average value for the period analysed. However, in 2017 the average price began to recover reaching $54.24/bbl. In 2018, with an increase of 31% compared to 2017, the average price increased to reach $71.06/bbl, which is the maximum average value recorded between 2015 and 2018. But, for the first three quarters of 2019, the average price reached was $64.68/bbl, 9.0% lower than the annual average price of 2018. This decline was influenced by the concerns about the global economic growth.
In 2015, the TTF gas had an average price of €19.78/MWh, 5.4% lower than in 2014, of €20.91/MWh. The following year, the annual average price decreased to reach the minimum value of the 2015‑2018 period, of €13.98/MWh. Subsequently, the prices began to increase until an annual average value of €22.87/MWh was recorded in 2018. However, during 2019, the prices were gradually decreasing until the end of September, with a monthly average value of €9.62/MWh. The average price for the first three quarters of 2019 is €13.90/MWh, 39% lower than the average price of 2018 and 25% lower than the average value of the 2015‑2018 period, of €18.47/MWh.
The API 2 coal prices, in 2015, decreased by 25% compared to 2014, reaching an average value of $56.34/t. But in 2016 they started an upward trend that continued until 2018. Thus, the maximum average price of this period was reached in 2018, with a value of $91.69/t. This value is 63% higher than the average price of 2015, with which the analysed period began. This upward trend was not maintained throughout the first three quarters of 2019, when an average price of $63.73/t was recorded, 30% lower than in 2018.
The prices of the CO2 emission rights in 2015 increased by 28% compared to 2014, reaching an annual average value of €7.69/t. On the other hand, in 2016, the prices fell 30% to €5.36/t, the minimum annual average value of the period analysed. In 2017, the prices rose again and the annual average price was €5.84/t, 9.0% higher than that corresponding to 2016. This upward trend continued in 2018, when, with a rise of 172%, it reached €15.88/t. In the first three quarters of 2019, the upward behaviour was maintained and the corresponding average value was €24.80/t. Although in the third quarter of 2019, the prices began to decline greatly influenced by the development of the negotiations around Brexit, which are expected to continue to exert their influence in the fourth quarter of 2019.
On the other hand, the Phase 3 of the European Emissions Trading System (EU ETS), which covers the period 2013‑2020, is being developed during the analysed period. For this phase, an annual reduction of 1.74% compared to the average of the period 2008‑2012 in the amount of EUAs made available was planned. In addition, different strategies were developed to compensate for the oversupply of EUAs with which this phase began and prevent low prices from discouraging the reduction of CO2 emissions.
For the Phase 4 of the EU ETS, which begins in 2021, the implementation of the market stability reserve mechanism (MSR) is planned. The objective of the MSR is providing a long‑term solution to avoid imbalances in the market, when a large surplus of offers can be accumulated. The mechanism is designed to be objective and act in accordance with transparent rules: if the surplus of offers exceeds 833 million, the concessions are retained at auctions, and if the surplus of offers in the market falls below 400 million, then the reserve offers are injected, increasing the auction volumes.
The Spanish electricity market after the crisis
In the period after the economic crisis, the prices of the Spanish electricity market also recovered, favoured by the increase in the electricity demand, in the prices of the CO2 emission rights and of gas, coal and Brent.
In this period several elements show how the decarbonisation of the electricity sector is gaining prominence: the increase in the energy efficiency, the installed capacity of renewable technology, mainly wind energy and solar photovoltaic energy, the increase in the price of CO2, an instrument created to discourage the production with more polluting energies and the decrease in coal energy production. Taking into account the Integrated National Energy and Climate Plan (NECP), this is only the beginning, because in the coming years work will continue to achieve this important objective.
Surely, the most obvious effect of this decarbonisation of the electricity generation is taking place in 2019. The fall in the production of the conventional coal‑fired power plants, which was overcome for the first time by the solar energy production, thanks to the jump in the installed capacity of photovoltaic parks.
Twenty years of electricity market
In this series of AleaSoft articles on the electricity market, its operation and its various stages before and during the crisis were described. In these twenty years, the Spanish electricity market went from being an incipient and isolated market with a few agents, to being a dynamic market, with many participants and integrated with the rest of the European electricity markets. It went from a basically conventional thermal energy production to a diversification with the entry of the combined cycle gas turbines and the renewable energies.
The decarbonisation, the closure of the nuclear power plants, the increase in the renewable energies and the increase in the interconnection capacity, present very interesting challenges for a marginalist market that, so far and for at least another twenty years, has managed to adapt to all changes. AleaSoft was born practically at the same time that the liberalised electricity market and for twenty years has provided reliable forecasts for all types of agents participating in this market and other European energy markets.
Source: AleaSoft Energy Forecasting.