Spain Targets Power Market in Next Big Step for Green Transition

Spain aims to introduce legislation by the end of the year to help the European Union’s fourth biggest economy make a green transition.

The government in Madrid is seeking to modify how power prices are set and is weighing different price-setting methodologies, according to Deputy Prime Minister Teresa Ribera, who oversees energy policy.

Spain’s power market is struggling as electricity prices decline due to a combination of cheaper clean energy, lower demand due to the economic crisis and cheaper oil and gas. That poses a problem for the government, as power bills include many fixed-costs used to maintain the grid -- such as special payments made at certain times to large industrial consumers or compensation to generators for keeping idle plants.

“We are looking at different ways to set prices: power purchase agreements, pools, auctions with fixed prices,” Ribera said in an interview with Bloomberg last week, adding that the law reform plan is quite advanced. “This must all be done while also deciding how to cover the power system’s fixed costs.”

Spain is among the countries hardest hit by the coronavirus pandemic, with its economy forecast to shrink by as much as 15% this year and unemployment seen surpassing 18%. Debt is set to balloon as the government puts in place a number of aid programs but the country could also access as much of 140 billion euros ($157 million) in European Union aide.

Investor demand for Spanish renewable energy has boomed in recent years as the country pushes to meet European clean energy targets. Last week the government approved a decree to streamline permits for new projects, as it seeks to make renewables account for 74% of overall power by 2030.

Ribera, who also serves as ecological transition minister, is also focused on helping the nation move its fossil fuel-based industry into the electric vehicle era.

“Spain is quite behind in electric mobility,” Ribera said. “We are going to need to attract a kind of industrial company that’s different from car firms, because car firms make their innovation bets in their headquarters.”

Before the crisis, carmakers in the country were assembling five or six different models of plug-in hybrids or electric vehicles in Spain and had plans to increase that to up to 18 within the next two years, Ribera said.

“When the crisis imploded, the market became zero,” Ribera said. Carmakers were left with stocks of vehicles they couldn’t sell, she said.

The government reacted swiftly to ensure a recovery of industrial activity, Ribera said, in a reference to a plan announced earlier this month for the sector. Unlike Germany, which didn’t include any aid to fossil fuel vehicles in its own recovery package, Spain will allow consumers to replace their old cars with newer diesel and gasoline models.

The aide package will act as a hinge between the old and new industries, helping companies sell their old stock and signaling to auto firms that the Spanish industry’s future is electric, she said. The government also wants to limit public aid to fossil fuel-based companies through a climate change bill that has not yet been passed by congress.

“This is probably the last time we will see aid to the combustion engine,” Ribera said. “Our mobility is going in a different direction.”

©2020 Bloomberg L.P.

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