Coal to fight gas as Spain’s main renewables back up

Spain’s coal consumption is likely to remain unchanged year on year in 2015, with attractive international coal prices preventing a decline, while increased competition from the gas sector could help dampen any significant increase.

Coal has accounted for an increasingly higher proportion of Spain’s electricity output since May last year. In Q1 2015, coal use was up 155% year on year and accounted for 16% of all electricity generated in Spain, up from 7% in Q1 2014.

The large increase can be partially explained by the fact that coal generation in Q1 2014 was very low at just 4.3GWh because of a surge in renewable output during the period. However, coal-fired generation averaged at 13.2GWh (between 12-18% of total generation) per quarter during the rest of 2014.

One trader thought coal generation could remain high for the rest of the year because renewable output, which is typically the highest at the start of the year, will have to be substituted. “So we’ll need to continue using coal as a secondary resource, “ the trader said.

However, competition from the gas sector to provide back-up generation could stop any further increases in coal generation, at least over the summer.

Gas and coal compete to cover what has been named the thermal gap, that is the shortfall between renewables output and electricity demand.

Gas demand from the electricity sector is up 24% year on year, according to the latest figures from TSO Enagas, while gas prices in Spain are now cheaper than they were at the same time last year, and in comparison to Q1 2015, due to the recent drops in Brent crude, to which the contracts are indexed.

“Gas could be a source of more competition over the summer, so I don’t think an increase in coal use is guaranteed even if renewables are low. The spark spread for Q3 is positive at the moment, so we’re definitely going to see more gas used in the electricity generation sector between July and September,” a trader who looks at both the Spanish power and gas markets said.

Three Spanish utilities said earlier this year that the end of a domestic coal-burn incentive scheme will not affect negatively coal-fired generation at their plants, with Gas Natural Fenosa forecasting a generation increase (see EDCM 9 January 2015 and 14 January 2015).

A new domestic coal subsidy scheme could be implemented but is unlikely to shift the balance towards increased domestic coal use (see sister publication EDEM 17 April 2015). Claire Wilson