ICIS Power Perspective: Understanding the sensitivity of the Iberian Peninsula to hydropower generation

Author: Zaheer Ahamed


This story has originally been published for ICIS Long-Term Power Analytics subscribers on 02 March 2020 at 12:00 CET.

Hydropower generation in the Iberian Peninsula is volatile, with a swing of between 34TWh and 52TWh seen over the past five years, which in turn effects average annual prices in Spain and Portugal. We modelled a range of hydropower generation scenarios to assess the sensitivity of Iberian prices to hydro changes. The results show that average annual prices in Spain can vary between €0.68/MWh and €3.87/MWh over the coming decade depending solely on the hydro generation levels. The impact in Portugal is even larger, with prices varying between €0.84/MWh and €5.15/MWh based solely on hydro generation changes.

The level of hydro generation each year has a knock on impact on gas generation in both countries, as well as imports from France. In both countries, the phase out of coal capacities over the coming decade increases the impact of hydropower on prices.


  • Hydropower generation plays an important role in both Iberian countries by making up approximately 10% of the generation mix in Spain and 25% in Portugal
  • Hydropower generation is very volatile and can fluctuate wildly between years
    • In 2016, the hydropower generation touched almost 60 TWh (up 16 TWh from the previous year)
    • In 2017, the total hydropower generation in the Iberian peninsula was 28.3 TWh (almost 32 TWh less than in 2018)

Table 1: Hydropower generation in Iberia (TWh)

  • This is due to hydropower generation being highly dependent on reservoir filling and therefore on the precipitation levels
  • In 2020, the average Spanish reservoir level for this year has stood so far at 56% while the same for 2019 was 45%
  • In 2020, the average Portuguese reservoir level for this season has stood so far at 65% while the same for 2019 was 70%
  • Given the uncertainty around the precipitation levels, it is difficult to forecast exact hydropower generation for specific years so far into the future
    • For our reference scenario the mean of the last 5 years is considered the norm
  • Hence a better understanding of the model forecast can be gained by looking at the sensitivity of the country’s generation fleet to its hydropower generation

Model Assumptions

  • We focus in this analyst update on the two extreme scenarios
    • The ‘wet years’ scenario considers an annual inflow of 125% of the reference annual inflows
    • The ‘dry years’ scenario considers an annual inflow of 75% of the reference annual inflows
    • Eight further scenarios with 5% increments between these values were also modelled but are not considered in the text of this analysis
  • The annual inflows are an input variable to exogenously control the amount of water (and subsequently energy) flows in to the hydro power plants
  • The hydropower generation is optimised within the model based on the inflow levels, the reservoir size available, and the pump capacity
  • In Spain, the ‘dry years’ scenario has 20.6 TWh of annual inflows while the ‘wet years’ scenario has 34.4 TWh with approximate 1.4 TWh intervals between all scenarios
  • In Portugal, the ‘dry years’ scenario has 11.8 TWh of annual inflows while the ‘wet years’ scenario has 19.7 TWh with approximate 0.8 TWh intervals between all scenarios
  • All capacity and fuel/carbon price assumptions from the base case remain unchanged

Important definitions

  • The price sensitivity is defined here as a change in annual price (in terms of €/MWh) for each 1TWh change in hydropower generation and is measured in €/MWh/TWh
  • The emissions sensitivity is defined as the change in emissions expected in the country for every unit of generation from hydropower production and is measured in tCO2/MWh or MtCO2/TWh



  • The price deltas grow consistently between the scenarios in both countries as years progress
    • Spain starts with a delta of €0.68/MWh in 2020 and ends with €3.87/MWh in 2030 between the two extreme scenarios
    • Portugal sees a higher impact with a delta of €0.84/MWh in 2020 and reaches €5.15/MWh in 2030
  • Both countries showed an increasingly higher sensitivity to hydro generation towards the end of the decade, though Portugal was twice as sensitive compared to Spain as shown in the table below
  • The increasing sensitivity is explained by the phasing out of conventional base load capacities leading to hydropower playing a more significant role in the generation mix in both countries
  • Hydropower generation in Portugal accounts for approximately 25% of its generation (11 % for Spain) and explains the higher sensitivity of Portugal

Table 2: Change in electricity prices (€/MWh) for change in Hydropower generation (TWh)

Generation and Trade

  • In the ‘dry years’ scenario, the generation deficit is generally covered by gas generation in Spain
    • The increase from gas accounts for between 80-85% of the lost generation through hydropower between 2020-2030
    • The other generation technology that pick up are coal and wind (less curtailment), although the coverage from coal takes a hit post-2025 due to its phase-out
    • The overall drop in generation is around 10% of that lost through hydropower and is covered by increasing imports from France (while import from Portugal also take a hit)
  • The ‘dry years’ scenario in Portugal leads to the shortages being covered predominantly by gas generation and lower exports
    • Gas generation generally accounts for 70% of the shortage in the early year but gradually reduces to 50%
    • Coal generation also picks up to cover about 5-15% of the deficit in the early years before being phased out
    • The remaining generation deficit is obtained through reducing exports to both Morocco and Spain and prioritising domestic adequacy, especially in the latter years
  • In the ‘wet years’ scenario, the opposite behaviour is observed in Spain with hydro generation increasing at the expense of gas generation (rather than the more competitive French and Portuguese imports)
    • The gas generation reduction is around 80% of the total increase in hydropower generation
    • The dynamic in trade shows interesting behaviour since the imports from Portugal increase significantly but are offset by reduced imports from France, resulting in overall less net imports into the country
  • The ‘wet years’ scenario has fairly straightforward results in Portugal with gas and trade most affected by increased generation
    • Gas generation reduces by about 50% of the hydropower increase in the early years but reduces to around 35% by 2030
    • On the other hand, power export shows the opposite trend, initially accounting for 27% of the generation but eventually reaching 60% of hydropower and thus pushing most of the surplus to the surrounding countries
    • Almost all of the increased exports ends up in Spain and contribute to the reduced dependence of Spain on French imports


  • The level of hydro generation plays an important role in the overall emissions of both countries
    • In Spain, the two extreme scenario show a difference ±7-10% of the overall emissions of the country and stays fairly consistent over the years
    • In absolute terms, the ‘dry’ and ‘wet’ scenarios emit 42 and 36 Mt CO2 in 2020, and 25 and 20 Mt CO2 in 2030, respectively, in Spain
    • In Portugal, the relatively small size of the generation fleet plays an important role in how the emissions react to hydropower and coal phase out plans
      • In the early years, the emissions from gas changes with varying hydropower generation while coal continues to be baseload, which lends to a low emissions impact (±8% of the total emission)
      • In the later years, since gas is the only emitting generation type, the scenarios increase the emissions by as much as 20% and reduce them by 14% with gas generation rising and falling similarly
    • In absolute terms, the ‘dry’ and ‘wet’ scenarios emit 18 and 15 Mt CO2 in 2020, and 4 and 3 Mt CO2 in 2030, respectively, in Portugal
  • The emission sensitivity of the fleet to hydropower generation is higher in Spain than in Portugal and remains so throughout the modelled period
    • Spain adds or reduces roughly 0.48 MtCO2 for every TWh change in hydropower generation in the country in 2020 and this goes down to 0.3 MtCO2/TWh in 2030
    • Portugal, on the other hand, increases or decreases its emission by 0.38 MtCO2 for every TWh change in its hydropower generation in 2020 and by 2030 is down to 0.17 MtCO2/TWh

Zaheer Ahamad, Federica Di Sario

Zaheer Ahamed is an Analyst - EU Carbon & Power Markets at ICIS. He can be reached at zaheer.ahamed @icis.com

Federica Di Sario is a Market Reporter at ICIS. She can be reached at federica.disario@icis.com

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