Clean, affordable and reliable: Getting Spain’s power system transformation right
Spain has set some of the most ambitious renewable energy targets in Europe. The country is planning to double the share of renewables in its electricity mix from roughly 37% in 2015 to 74% in 2030, with solar and wind power leading the way towards those targets. But a question remains: How can Spain reap the full benefits of the energy transition while ‘keeping the lights on’ cost efficiently?
Christos Kolokathis reviews the resource adequacy outlook in Spain and suggests measures that the country can adopt to achieve the desired levels of reliability at least cost while increasing the levels of renewables in its system.
Spain’s resource adequacy outlook shows that the market faces a significant overcapacity problem, which is expected to persist over the medium term, even under a scenario of significant retirements. Spain has no need for a capacity remuneration mechanism to secure supplies. Adopting such a mechanism would prolong the overcapacity issues and delay the much-needed retirement of generating plants, at an unnecessary cost to consumers.
As the Spanish power sector transforms towards a system increasingly based on variable renewables, the market will also need to adapt to simultaneously obtain the benefits of the transition and ‘keep the lights on’ at least cost. System flexibility will be key to achieving these goals. We recommend a series of measures to enhance system flexibility:
- An improved wholesale market design, by way of implementing administrative reserve shortage pricing through the balancing market and introducing locational signals in price formation.
- The further integration of the Spanish market into the Continental market, including increasing the amount of available interconnector capacity released to the market to the economically optimal level.
- An enhanced role for demand response that ensures time-varying retail prices deliver efficient outcomes and that explicit demand response can participate in all markets with rules that facilitate its development. Spain could also improve the design of its network tariffs to further enable cost-effective demand-side flexibility.