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    Electricity companies believe gas cap will increase electricity exports to France fivefold

    June 20, 2022 - CE Noticias Financieras


      The so-called Iberian exception, the mechanism that empowers Spain to impose a limit on the price of natural gas used to generate electricity, will multiply electricity exports to France by a factor of five, according to calculations by the employers' association of electricity companies (Aelec). With a substantial part of the neighboring country's nuclear plant shut down and Spain generating cheaper energy with the gas cap, French demand for Spanish electricity will grow exponentially: the five terawatt hours (TWh) that would have crossed the Pyrenees heading north this year without the mechanism will become 25, according to the organization. This amount is equivalent to 10% of Spain's annual demand.

      In a typical year - this year, for example, until the gas price cap comes into force - the cable linking the Iberian peninsula with the rest of the continent has a double flow: when it is windy and sunny in Spain and demand is moderate, exports tend to predominate; when consumption soars and renewables do not provide enough, the enormous power output of French nuclear power turns the balance around. Although the upward trend in exports had been going on for some time, this reality has exploded in the first days of the application of the gas cap: French electricity imports have disappeared and the flow is reduced to Spanish exports. A problem for Spanish consumers: the higher foreign demand raises both the domestic price and the compensation linked to the cap.

      More informationMarina Serrano (Aelec): "Only vulnerable consumers should have a regulated tariff "

      Electricity generated with gasThe

      extra electricity to be sold to France will come, almost entirely, from combined cycles, the thermal power plants that burn natural gas to obtain electricity. Unlike the neighboring country, Spain has a large idle capacity of these facilities, once thought of as a key guarantee of supply at times when renewable generation (much cheaper under normal conditions and exponentially cheaper since the outbreak of the energy crisis, when gas prices have multiplied by four to five times). "We are going to maximize our production with gas until we saturate the interconnection," Pedro González, Aelec's Director of Regulation, emphasized at a press conference held this Monday in Madrid.

      The interconnection between Spain and France is very low compared to that between other European countries: it accounts for barely 2.8% of the total capacity of the Iberian system. This was the argument put forward by Madrid and Lisbon for Ursula von der Leyen and her team to give their approval to the mechanism and this is, today, the biggest obstacle to prevent exports from growing even more: if it were not for this physical limit, the flow would increase at an even higher rate, given the growing price gap between the two countries. The new submarine cable, which will link the two countries through the Bay of Biscay, should be operational in 2027 after years of delay.



      attempt to avoid the sale of subsidized energy to the neighboring country, the Spanish government's initial proposal to the European Commission was for a double auction that would set two different prices: one for the Spanish mainland and another for exchanges with France. Brussels, however, rejected it. Following this refusal by the Community Executive, and in order to alleviate the negative effect on the pockets of national consumers, Madrid decided that part of the so-called congestion rents - which capture the price difference between the two markets - would be used to compensate households and companies. The outcome of this solution remains to be seen.

      Beyond the Pyrenees, Spain has two other active interconnections: with Portugal and Morocco. In both, Aelec foresees a minor variation. In the first case, given that the gas cap will be applied throughout the Peninsula, the balances will remain as they are now: there will be import days and export days in the Iberian market. In the second case, the net result will not vary much either: "Until now we had a net export balance, which will increase. What happens is that the relevance of the two links [with the African country] is not as great as the French one," González points out.


      electricity employers' association calculates that the gas cap has led to savings of slightly more than 11% in the first four days since its activation. The first two days -Wednesday and Thursday-, in which high temperatures triggered consumption and renewables were far from their usual records -little wind, haze and high heat, which reduces the efficiency of solar panels-, were the days with the lowest savings: 6%. On Friday and, above all, on Saturday, when these conditions began to disappear, the reduction brought about by the limit on the price of gas rose to 11% and 22%, respectively.

      "It is difficult to assess the savings of the first few days: it has been an atypical period, in which very high demand and high compensation have coincided. We should start to see some increase in savings this week, when temperatures will drop substantially. Will the 30% [forecast by the Government in the wholesale market] be reached? It's hard to know yet," Gonzalez said.

      When asked if the expectations of a reduction in the bill that Pedro Sánchez's government is expecting (a drop of between 15% and 20% in the bill for regulated market customers) will be met, Aelec's head of regulation preferred not to comment: "It will depend on weather conditions, renewables and the price of gas. The savings we have seen have been lower than expected, but in the last few days they have gone up and will continue to do so".


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