An Overview of the Spanish Electrical System and its Liberalisation

Transcription

1 An Overview of the Spanish Electrical System and its Liberalisation Juan Rivier Abbad Based on previous presentation from I. Pérez-Arriaga & C. Batlle

2 Contents Basic data on the Spanish Electrical System Regulatory framework Successes and flaws Spanish Electrical System Overview CEEM Presentation - 2

3 Spanish evolution: last 10 years 10% population growth (mainly immigration) 44% GDP growth (average of ~4%/year) 56% energy consumption growth (average of ~5%/year) 72% hourly peak demand growth (average of ~5.5%/year) 50,000 45,000 40,000 Hourly Peak Demand Annual Energy Demand 300, ,000 35,000 30,000 Δ72% Δ56% 200,000 MW 25,000 20,000 15, , ,000 GWh 10,000 5,000 50, Source: REE&CNE Spanish Electrical System Overview CEEM Presentation - 3

4 Evolution of installed capacity CCGTs and Wind are almost the only ones being installed: >12 GW of CCGT and >9 GW of wind out of 27 GW growth 80,000 70,000 MW installed capacity 60,000 50,000 40,000 30,000 20,000 Special Regime Fuel+Gas Nuclear Coal CCGT 10,000 Hydro Spanish Electrical System Overview CEEM Presentation - 4

5 Installed capacity December 2005 MW 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, ,657 11,565 12,258 7,876 6,647 18,740 Hydro Coal CCGT Nuclear Fuel+Gas Special Regime MW 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, ,818 9,602 1,700 CHP Wind Small hydro Solar PV Biomass Solid Waste Waste treatment Spanish Electrical System Overview CEEM Presentation - 5

6 Energy production mix evolution Due to demand growth and droughts, coal-fired generation is not really reducing its output 300, ,000 Energy demand (GWh) 200,000 Special Regime Fuel+Gas 150,000 Nuclear CCGT 100,000 Coal 50,000 Hydro Spanish Electrical System Overview CEEM Presentation - 6

7 Energy mix today (year 2005) CCGT 18% Nuclear 22% Fuel+Gas 4% Source: REE Coal 30% Hydro 7% Special Regime 19% Solar PV 0% Biomass 4% Solid Waste 5% Waste treatment 6% Small hydro 7% CHP 36% Wind 42% Spanish Electrical System Overview CEEM Presentation - 7

8 Contents Basic data on the Spanish Electrical System Regulatory framework Restructuring process Market design Successes and flaws Spanish Electrical System Overview CEEM Presentation - 8

9 Restructuring process: initial situation Fully private but for the system operator (REE) Smooth transition: traditionally private companies, a few partially owned by public institutions Already had an independent SO (since 1984) Wealthy electrical utilities Good service quality Good reserve margin Previous regulation tended to micro-regulation Spanish Electrical System Overview CEEM Presentation - 9

10 Restructuring process: main decisions National champions (will come back to this subject later) Foreseeing a European energy market Vertical integration: legal separation between different activities, but no limitation to ownership Red Eléctrica de España (REE): system operator, transmission network owner and manager Operador del Mercado Eléctrico (OMEL): market operator, newly created Wholesale market (not mandatory) Explicit support to renewable energy sources and CHP (through a Special Regime) Spanish Electrical System Overview CEEM Presentation - 10

11 Wholesale market design Both demand and generation make bids to the market Hourly market Sequence of different markets until real time is reached No derivatives markets In the future there will be a market involving Portugal Freedom for international exchanges (within congestion limits) Spanish Electrical System Overview CEEM Presentation - 11

12 Wholesale market structure Wholesale market Bilateral contracts Derivatives market Day ahead market Intra-day markets Management of technical constraints Ancillary services market Contract for differences Physical contracts Market operator Energy schedule System operator Spanish Electrical System Overview CEEM Presentation - 12

13 Wholesale market: ancillary services Mandatory services Primary reserve (speed control) Reactive control Non-mandatory services Secondary reserve (AGC) Band and energy up to 15 minutes Control areas: each utility has one Tertiary reserve Available in 15 minutes and maintained for 2 hours Marginal price Black-out start Additional reactive support Costs fully assigned to agents that deviate from their bid Spanish Electrical System Overview CEEM Presentation - 13

14 Special Regime Feed-in-tariff Distribution companies have to buy their production Under 10 MW No mandatory production forecast Implies costs to distribution companies Over 10 MW Mandatory production forecast Penalisation if deviation bigger than a threshold Market access + premium Meant to lead to a better market integration Most wind generators have switched to the market (high prices) Spanish Electrical System Overview CEEM Presentation - 14

15 Energy price composition Last year annual average price (sept04-sept05) Total: 5.59 c /kwh = 8.95 c$/kwh % % 2.3% 1.2% Capacity payment Technical operation Intra day markets Secondary reserve band % Technical constraints Day ahead market % Spanish Electrical System Overview CEEM Presentation - 15

16 Restructuring: Spanish peculiarities Generation Capacity payments Stranded costs Regulated tariff Gradual gas liberalisation Gas CHP subsidised during 10 years Spanish Electrical System Overview CEEM Presentation - 16

17 Capacity payments Additional payment on top of market price Meant to encourage new entrants and delay closure of old facilities Generators are paid based on Long term reliability (estimated contribution to long term system reliability) Real short term reliability Technical availability, maintenance, hydro reserves management Actual payment was very high Has been reduced 2 times It was 25% of market incomes (now 8% partially due to price surges) There is no real incentive for high reliability Spanish Electrical System Overview CEEM Presentation - 17

18 Generation stranded costs Paid as the difference between market price and a fixed estimated price used to calculate the regulated tariff (6 c$/kwh) Interference with the market Has stabilised the price in the past few years It has been used as a buffer to settle any other cost deviation The total amount to be paid has been under discussion since it was decided Final payments were stopped last year This decision, among other factors, has lead to an increase of 72% in the 2005 average market price over 2004 Spanish Electrical System Overview CEEM Presentation - 18

19 Regulated tariff No published methodology to calculate the tariffs Incoherence between access tariffs and full tariffs Energy cost included in full tariffs is based on the estimated wholesale market price set at 6 c$/kwh Demand growth has allowed a reduction of regulated tariffs in the last 10 years, despite (increasing) extra costs of Special Regime (1.5 b /year) Due to energy price growth (last 2 years), there is a tariff deficit Distribution companies are supporting it Generation companies get large profits Most companies are vertically integrated Even though distribution companies are entitled to receive this tariff deficit, the government is reluctant to pay it Specially now that E.ON wants to buy ENDESA Spanish Electrical System Overview CEEM Presentation - 19

20 Regulated tariff Year Average tariff RPI Source: CNE Spanish Electrical System Overview CEEM Presentation % (1987 is 100% base)

21 Contents Basic data on the Spanish Electrical System Regulatory framework Successes and flaws Spanish Electrical System Overview CEEM Presentation - 21

22 Successes Smooth transition Market design doesn t seem to have big flaws No major problem with system security Ancillary services have worked well Normal operation, easy and cheap implementation Security of the system has not been jeopardised Network restrictions management has been criticised (and changed lately) White Book has been published recently Transmission regulation Simple and traditional, but without problems Wind High penetration of wind energy (10 GW and 8% of total energy) Spanish Electrical System Overview CEEM Presentation - 22

23 Flaws (i) Horizontal concentration (national champions) Possible price manipulation Market price is not credible Stranded costs problem Interference with the market Long term capacity reliability Lack of a tariff design methodology Distribution remuneration Urgent need to develop a viable and quality related regulation Spanish Electrical System Overview CEEM Presentation - 23

24 Flaws (ii) Need of an effective retail market liberalisation Tariff methodology Credible market price Need to increase gas market liberalisation Government is promoting or at least allowing diagonal concentration (gas & electricity) Environmental sustainability Energy efficiency: complete lack of demand side management CO 2 ETS (45% increase vs. 15%) Higher renewable energy sources penetration Biomass Solar (PV and thermal) Spanish Electrical System Overview CEEM Presentation - 24

25 IBERDROLA 37% UEF 14% HC 4% Horizontal concentration Initial structure GENERATION DISTRIBUTION (*) IMPORTS AND OTHERS Spanish Electrical System Overview CEEM Presentation - 25 ENH & HC 10% ERZ, EV 11% CSE 14% FC 10% ENDESA 26% ENH &HC 2% ERZ, EV 7% CSE 6% FC 6% IBERDROLA 25% UEF 11% HC 4% * 13% ENDESA Group: 47% ENDESA Group: 44%

26 Horizontal concentration GENERATION Last years 33% G. ENDESA 30% IBERDROLA 10% 5% 4% 18% UEF VIESGO HC * DISTRIBUTION G. ENDESA 39% IBERDROLA 39% UEF 15% VIESGO HC 3% 4% (*) IMPORTS AND OTHERS Spanish Electrical System Overview CEEM Presentation - 26

27 International exchanges (ii) Σ 7 % Spanish Electrical System Overview CEEM Presentation - 27

28 National champions ENDESA Group was created after liberalisation Merger of all the electric companies with any public ownership Today (i) Gas Natural (former Spanish gas monopolist) has made a takeover bid for ENDESA Spanish international strategy (national champion) and regional equilibrium Gas Natural is 1/3 of ENDESA but indirectly under public control Spanish Electrical System Overview CEEM Presentation - 28

29 National champions Today (ii) E.ON has made a higher takeover bid for ENDESA Spanish government has publicly opposed this offer Published two Royal Decrees to Enhance the Regulatory Commission s powers to judge the transaction Recover costs of given CO2 emission permits and oblige vertical integrated companies to sell to their distribution company standard price energy Spanish Electrical System Overview CEEM Presentation - 29

30 National champions in Europe Germany E.ON was allowed to merge with RHURGAS in order to build a big German company that would be able to compete with EDF France Protects EDF in France Is promoting now a merger between GDF (French gas monopolist) and Suez (French services company) to create a new French giant energy company Suez owns Electrabel (Belgium utility) ENEL (Italian utility) was preparing a takeover bid for Suez Spanish Electrical System Overview CEEM Presentation - 30

31 Thank you for your attention Juan Rivier Abbad Based on previous presentation from I. Pérez-Arriaga & C. Batlle Spanish Electrical System Overview CEEM Presentation - 31

32 Contents Some additional slides that contain some useful information Spanish Electrical System Overview CEEM Presentation - 32

33 Spain today (i) Situated South West of Europe Total area 505,000 km 2 (NSW ~800,000 km 2 ) Population: 44 million Economic data: GDP: $1,340 b (837 b ) $31,155 /capita (19,472 /capita) Australia: ~$875 b ~$43,670 /capita Electrical data: Peak demand: ~43,000 MW Energy consumption: 243 TWh (5.6 MWh/year&capita) Australia: 192 TWh (9.6 MWh/year&capita) Spanish Electrical System Overview CEEM Presentation - 33

34 Spain today (ii) Electrical data: Installed generation capacity: ~73 GW (Dec 2005) Transmission network 400kV: 16,800 km 220&132kV: 16,000 km Customers ~23,000,000 LV customers (~47% energy consumption) ~65,000 HV customers (~53% energy consumption) Spanish Electrical System Overview CEEM Presentation - 34

35 Spanish evolution Reserve margin reached its minimum in without Special Regime (same as in 2005) 1.58 with Special Regime Total Generation Total Generation without SR Peak demand 80,000 70,000 60,000 50,000 MW 40,000 30,000 20,000 10, Spanish Electrical System Overview CEEM Presentation - 35

36 Spanish future installed capacity If all the generation plants that are planned today (at any stage of the administrative process) are built in the next 5 years, there will be around 20 GW of additional wind (~30 GW in total) 16 GW of additional CCGT (~28 GW in total) + rest of Special Regime technologies Biomass Solar thermal Solar Photovoltaic Etc. Spanish Electrical System Overview CEEM Presentation - 36

37 Restructuring process: acceptance Shareholders: stranded costs acknowledgement Customers: regulated tariff reduction Primary energy suppliers: 10 years of subsidies to Spanish coal mines Gradual gas liberalisation CHP generators: 10 years of gas subsidies Spanish Electrical System Overview CEEM Presentation - 37

38 Wholesale market: characteristics Every transaction is considered firm Each market has an independent price Day ahead market: price-quantity bid for each hour of next day Each hour has its own marginal price Intra-day markets: same, but for increments over the dayahead market transactions Congestion management Reserves markets The SO is able to call for a deviation market if needed Spanish Electrical System Overview CEEM Presentation - 38

39 Retail market Fully liberalised since 1/1/2003 Retail market was liberalised in several steps Jan. Apr. Jul. Oct. Jul. 15 GWh 5 GWh3 GWh2 GWh1 GWh > 1kV 700 customers 26% of system energy ,000 customers 43% energy 65,000 cos. 52% energy There is still the option to remain at a regulated retail tariff through incumbent distribution companies Few customers have switched to a liberalised retailer (!) Regulated retail tariff does not reflect actual generation prices, which means that retailers will loose all the customers they gained in the past years All Spanish Electrical System Overview CEEM Presentation - 39

40 Contents Basic data on the Spanish Electrical System Regulatory framework Restructuring process Market design Other activities Transmission Distribution Successes, flaws and future evolution Spanish Electrical System Overview CEEM Presentation - 40

41 Transmission: new investments The SO proposes an expansion plan Does not know anymore where the generation facilities will be connected The regulator approves the plan and construction, operation and maintenance is assigned through competitive offers (regulation not yet completely developed) directly in special cases Spanish Electrical System Overview CEEM Presentation - 41

42 Transmission: losses The SO (REE) calculates loss factors in each node based on marginal losses normalised to match the cost of losses Each generator production or demand consumption is adjusted with this factor in the wholesale market A generator connected to an exporting node can only sell less energy than it produces (the loss factor will lower than 1) Spanish Electrical System Overview CEEM Presentation - 42

43 Transmission: access Free access to the transmission network is guaranteed Customers Have to pay for any special equipment Access can be denied in one node if there is not enough capacity Alternative nodes can be offered Generators Have to build, operate and maintain all the needed equipment Access is not denied if there is not enough capacity, even if conflicts with other generators arise Network capacity reservation is not allowed Spanish Electrical System Overview CEEM Presentation - 43

44 Transmission: congestions Spanish internal congestions REE will solve the congestion using the generators bids Any unmatched generator that produces because of technical reasons is paid their original bid price Costs are fully assigned to those responsible for demand International congestions pro rata between bilateral contracts and market bids First-come-first-served Spanish Electrical System Overview CEEM Presentation - 44

45 Distribution Global revenue cap Unlinked to ongoing changes in real distribution costs Each company has a fixed % of this amount, independently of changes to their market share Quality Regulation Continuity of supply Large individual limits (number and duration of long interruptions) Individual compensation if threshold is reached Large system limits (ASIDI and ASIFI) Mandatory investment plans if threshold is reached Partially financed by access tariffs Commercial quality: some controls Power quality: not yet developed Spanish Electrical System Overview CEEM Presentation - 45

46 International exchanges (i) Suiza Austria Holanda Grecia Bélgica Alemania Portugal Francia Italia España Reino Unido Spanish Electrical System Overview CEEM Presentation - 46