Spain imports 80 per cent of its primary energy requirements: – 64 per cent of its coal and almost all its oil and gas requirements. Its current installed capacity is 70.7 GW, and growth is forecast to be around three per cent per year until 2011. Interestingly, Spain’s growth rate has slowed slightly since the early 2000s when it was increasing at around five per cent annually.
Fossil fuel facilities provide approximately 52 per cent of Spain’s power generation. Coal is the country’s most plentiful indigenous energy source and the coal industry did receive extensive government support until the European Union (EU) state aid rules called for the end of the subsidy by 2010. More than 60 per cent of coal is used for domestic power generation, while a quarter of Spain’s capacity is in hydroelectric plants. Although most hydroelectric plants include storage, in dry years lack of rainfall can disrupt hydropower supplies. This is a clearly long-term concern as climate change is likely to bring scarcer and more erratic rainfall to the country.
Following liberalization of the gas market in 2003, Spain’s gas demand has increased by up to 12 per cent annually, and this is expected to continue until 2011. Much of this growth is driven by the switch to gas fired power generation, following government approval of a ten-year energy plan setting capacity targets of 33 per cent for gas fired generation. Ten new combined-cycle gas turbines (CCGT) were commissioned during 2004, increasing installed capacity by 3865 MW. As a result, in 2004 gas consumption increased by 68.5 per cent on the previous year (67 497 GWh, compared with 40 045 GWh in 2003).
Among the power companies, Endesa S.A. has announced the construction of ten new CCGT plants in Spain and Portugal by 2009, representing over 6000 MW of new generation capacity. Union Fenosa also plans to build a 1200 MW power facility near the new LNG terminal at Sagunto, consisting of three 400 MW CCGT.
Spain’s Electric Power Act of 1997 decreed that renewable energy sources should provide at least 12 per cent of primary energy supply by 2010. Spain’s Electricity and Natural Gas Plan: Transmission Grid Development 2002-2011 endorsed this renewable energy goal. By 2005 the contribution from renewables stood at 6.9 per cent, but a new plan in 2005 was introduced to give the programme additional impetus.
Spain vies with the USA to be the second largest producer of wind power in the world after Germany. Government policy to increase wind power from its present level of 6.5 GW to 13 GW by 2011 was revised in the 2005 plan, and the target is now 20 GW. Even though planning consents for wind farms are now more difficult to obtain, Spain is still regarded as one of the most attractive countries for renewable energy projects.
Spain also has six nuclear power plants in operation. They are due to reach the end of their originally planned lifetimes in the early part of the next decade, but most are expected to continue to operate for at least an additional ten years.
Mergers & Acquisitions
Spanish energy companies have recently been both the target of takeovers from other European power companies, and have made acquisitions elsewhere in Europe. Iberdrola, for example, acquired the UK’s Scottish Power. While the most high-profile deal was Germany’s E.ON’s and Enel/Acciona’s long drawn out battle for Endesa. The latter pairing finally won out, although E.ON did not walk away empty-handed from the deal.
The Spanish government is currently subject to legal action by the European Comission over the conditions it imposed on a proposed on the E.ON. The government has been accused of protectionist measures.
Looking to the future
Spain is expected to remain in pole position in regular measures of “attractiveness” for renewable energy investment produced by Ernst & Young. However, last year Spain began to reduce the subsidy available to wind power, which had previously been its largest renewable sector.
Spain’s final position on renewables will depend on a new renewables plan for the period 2011 to 2020, which is due to be drawn up this year. The current regulatory framework, in which renewable sources receive guaranteed tariffs set annually by government, or can participate in the unregulated market with the possibility of higher returns, is due to expire in 2010. The largest Spanish renewables investor is Enel, which has released plans for investment of €3.3 billion ($4.3 billion) in renewable energy, the bulk of it in Spain. The company also said it would invest €800 million in improving the efficiency of existing plants.
Continued investment in LNG infrastructure and gas pipelines mean that Spain will increase its reliance on gas for power generation US-based merchant generator AES, for example, started up a new CCGT at Cartagena rated at 1200 MW at the end of last year – the company’s first Spanish investment. Back in November 2001, Spanish and Portuguese administrations agreed to establish an Iberian electricity market (known as Mibel), unifying their electricity networks and giving all participants equal access to the Iberian market operator and to third party interconnections. The single market finally went live in the third quarter of 2006. The two sides of the market are currently operated separately, but are expected to be merged either at the end of this year or early 2008.
Thus, looking to the future Spain’s continued investment in its infrastructure is likely to be accompanied by continued mergers and acquisitions by Spanish energy companies.