ICIS: Spain increases green ambitions in updated climate plan, and first look at new RES auctions

This story has originally been published for ICIS Long-Term Power Analytics subscribers on 07 February 2020 at 10:20 CET.

On 23 January, the Spanish Ministry for the Ecological Transition and Demographic Challenge released its updated National Energy and Climate Plan (PNIEC) for public consultation. The update increases Spain’s solar ambitions, is more bullish on fossil fuel closures, and adds an explicit storage assumption. Followed by this, key rule changes for the not-yet-announced renewable energy (RES) auctions have been reported by local news. The update to the PNIEC follows its recent commitment to achieving a zero carbon economy by 2050, and the EU’s ‘Green Deal’. The impact on the power market will be decided by how much the coalition government is able to pass into law, how it will design RES auctions, and how it will tackle a shortage of grid connection licenses for renewables.

Key changes in the PNIEC for the electricity sector

• The new PNIEC increases ambitions mainly for solar, and reduces targets for CCGT, coal and biofuel (biomass and biogas) capacity. Full details are in the below charts
• The plan does not change its ambitions for hydro, nuclear and geothermal
• The plan also largely does not change cogeneration capacity targets, though the share of gas is higher, and the share of oil and renewables and waste is lower, compared to the previous draft
• The plan now targets 74% RES in power demand in 2030, up from the 70% target set in November 2018. The ICIS base case forecast released December 2019 forecasts 65% RES in power demand, and 70% RES in power generation
• The plan now targets 42% RES in final energy demand in 2030, up from 35% in the same November plan
• Power sector CO2e emissions are now expected to be 5% higher in 2030 vs the previous draft, albeit now 9% lower than the ICIS base case forecast (below chart)

Possible renewables auction changes

According to local news, the upcoming auctions will likely differ from prior auctions:

• Switch to tendering for power in MWh, instead of tendering for capacity in MW previously
• Pay as bid system, rather than uniform, as players then submit the lowest price they are willing to have, rather than taking a bet on the marginal successful bid
• Single technology auctions rather than multi-technology
• A potential change being considered is whether to include only a part of the project capacity in the auction, and require a portion to sell outside of the market

Analysis

• ICIS has a similar view to the new PNIEC for most capacity developments bar wind (below chart). The draft PNIEC is more bullish on wind capacity growth than ICIS. In our forecast we consider the level seen as feasible by a commission of experts in 2018

• Law-making will be slow as the Spanish government must pass laws on a bill-by-bill basis as the coalition government does not have a majority in congress
• A re-design of the RES auctions could be bullish for renewables growth. Switching from capacity to power output should make the impact on the power mix more transparent
• Switching to mono-technology will mean wind and solar will not compete against each other. In the 2016 and 2017 auctions the auction was open to all technologies but reserve prices in each were skewed to favour one
• The ambitious targets for RES growth will be somewhat supported by auctions, promised last year by the PSOE government at 3GW/a. However, the majority of the growth would have to come subsidy-free, as recent auction prices have come out below wholesale prices. Projects instead would come via PPAs or merchant-only projects, such as the recently announced 420MW solar farm from Hive Energy (source)
• At the Solar Finance and Investment Europe conference, organised by Solar Media on 5-6 Feb and attended by ICIS, the general outlook on renewables was positive. However, speakers on the panel did not believe the 2030 solar capacity targets from the government were realistic, suggesting between 25-30GW was actually possible
• The success of solar will be impacted by capture prices, the average price a solar producer achieves if selling all its produced power to the spot market at the time it’s produced. The ICIS forecast of Spanish capture prices are accessible to our subscribers, and show a decline from €48/MWh in 2020, to €38/MWh in 2030
• The growing pipeline of solar and wind projects far exceeds available grid connection licences. This is an issue the government, TSO and regulator must tackle. This is being addressed partly by the TSOs Grid2030 plan
• Adding storage capacity would allow a higher share of intermittent renewables and ICIS does not yet have an explicit battery storage view for Spain by 2030

Anise Ganbold is Senior Analyst – EU Carbon & Power Markets at ICIS. She can be reached at anise.ganbold@icis.com

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