Increased Spain-France power flows should continue – traders

Jon Stibbs

02-Feb-2016

The volume of electricity flowing from Spain into France is likely to remain higher than a year earlier over the next few months according to energy market participants.

The direction and quantity of flows between the two neighbours has been considerably more volatile so far this year in comparison to 12 months earlier when, in January 2015, power moved south almost continuously from France into Spain (see graph).

“It could be a key feature of the Spanish market in Q1,” said a trader at an energy services company in reference to the anticipated pattern of this year’s physical flows.

The opening of a new interconnector in October expanded cross-border capacity between the neighbours from 1.4GW to 2GW. The opening was supposed to increase capacity to 2.8GW, but the further additional space has been postponed until 2017 because of delays in installing a phase-shifter transformer in Spain.

The new interconnector has increased the potential for flows between the countries. However, the greater volume of flows seen in January this year cannot be explained by the additional capacity, but rather by shifting fundamentals.

Renewable output

Hydropower has provided the Spanish power market with considerably more supply this January, meeting over 15% of Spanish demand compared to 10.6% a year earlier according to national transmission system operator REE.

“Stronger hydro availability would help to increase exports if wind generation remains strong,” said one power trader.

Wind power has produced the greater proportion of Spain’s energy so far this year, meeting almost 35% of demand. Wind power output is volatile and very difficult to predict.

Moreover, in contrast to high reservoir levels in Spain, there is greater pressure on stocks in France. French hydro capacity is 26% lower than it was 12 months ago. While this has only had limited impact on prices so far it looks likely to contribute to the need for more imports from Spain in due course.

Demand-side

Consumption has also fed into the changing physical flow pattern between the two markets. Spain had the option of increasing its exports because demand in January was 5% lower than 12 months earlier, according to REE data.

While on the other side of the border, below average temperatures in France pushed up demand for heating for the early part of January and triggered imports from Spain.

“France is more weather sensitive,” said a trader at a utility last month. He also drew attention to industrial action by workers at French utility EDF on 21 January which saw some power plant capacity taken offline, increasing the need for imports.

Temperatures in France have since returned to normal so demand for Spanish exports has abated for now.

2016 and beyond

Looking further ahead, despite the volatility of wind power and the problems related to its absorption into the transmission grid, there is the prospect of Spain increasing its wind capacity from its current installed amount of 23GW.

It is hoped the successful auction of 500MW of wind power capacity last month will pave the way for further auctions of greater capacity. AEE, Spain’s wind energy association, has called for an auction of 6.4GW by the summer for the country to meet targets for renewable output by 2020.

But AEE has cautioned that the sector needs subsidies and a new regulatory framework if Spain is to encourage investment. Also it will take months before meaningful additional wind capacity comes online.

On the demand side, the longer-term picture is unclear. What is clear is that the Spanish economy grew last year. So if it fails to continue that growth, the year on year consumption shortfall seen in January could become a feature of the market, which could free up more production capacity to meet export demand. jon.stibbs@icis.com

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