France-Spain cross-border capacity to increase from October

Capacity on a new Spain-France electricity interconnector will be brought online gradually from October, subject to successful integration into the grid, according to French system operator RTE.

The interconnector was originally penned for launch at some point in the third quarter, and until now there has been no more specific information about its launch.

“From October, subject to the validation of the operation phase, the capacities offered by the new interconnection will be gradually integrated to the commercial products,” RTE told ICIS in a statement.

The move is expected to cut Spanish prompt volatility and raise French winter power prices.

Technical testing is being carried out on the 2GW cable, which will double electricity capacity between the two countries, and this is likely to continue throughout August.

This will be followed by a controlled operation phase which will allow the transmission system operators (TSOs) on both sides – REE in Spain, and RTE in France – to integrate the interconnection in their grid management processes.

Small volume testing of the interconnector has been taking place since June. On 27 July it was tested at maximum capacity in the France-Spain direction. Maximum reverse flows were successfully tested the following day, according to independent network monitor Genscape.

Market reaction

Participants in both the French and Spanish markets said the launch of the interconnector is likely to have the biggest impact on Spanish day-ahead prices, and could be a bullish driver for French winter contracts.

“The extra capacity may dampen down some of the volatility in the Spanish day-ahead market, because Spain can import more power from France on days when renewable output is low,” a trader active in Spain said.

“As renewable output affects the day-ahead price so much in Spain, I think it is here, rather than on the longer-term contracts, that we will see a bigger impact on price spreads between the two countries,” the trader added.

Day-ahead prices can swing €20.00/MWh higher or lower day-on-day in the Spanish market due to a heavy reliance on weather-dependent renewable energy.

The interconnector will have an impact on longer-dated products too, although this is expected to be more muted.

“Of course it will have an impact [on curve prices], but it won’t be absolutely critical in price formation. Prices in Spain are likely to remain strong, given the current fundamental outlook,” a second Spanish trader said.

Demand in Spain has increased 3% year on year in 2015 to date, and is expected to continue rising over the coming few years as a result of Spain’s ongoing economic recovery.

On the French side, the launch of the cable is expected to increase winter prices. “The increase in potential exports will be bullish for French winter spot prices,” a French market participant said.

But the impact on Q1 prices could be more muted because renewable turnout in Spain is typically at its highest in the first three months of the year.

“Spanish renewables are normally strong in January and February, and spot prices are usually at their lowest in February,” the second Spanish trader said.

This was certainly the case in 2014; Renewable output accounted for 50% of Spain’s total electricity output in Q1, and 28% in Q4, data from REE show. Prices hit their lowest level of the year on 9 February, €0.49/MWh, according to Spanish spot market operator OMIE. claire.wilson@icis.com