The so-called Iberian Exception, the mechanism that authorizes Spain to cap the price of natural gas used to generate electricity, will quintuple power exports to France. With a significant portion 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 north this year had it not been for the mechanism following Calculations by the Employers’ Association of Electricity Companies (Aelec) 25. This amount corresponds to 10% of Spain’s annual needs.
In a typical exercise – here, for example, until the gas price cap comes into force – the cable that connects the Iberian Peninsula with the rest of the continent flows twice: when it is windy and sunny in Spain and demand is moderate, export usually predominates; When consumption skyrockets and renewables aren’t supplying enough, the enormous pull of France’s nuclear power plants reverses this balance. Although the upward trend in exports comes from the past, this reality was blown up in the first days of the application of the gas cap: French electricity imports have disappeared and electricity is reduced to Spanish exports. A problem for Spanish consumers: greater external demand drives up both the internal price and the associated remuneration.
gas generated electricity
The additional electricity sold to France comes almost exclusively from combined cycle power plants, thermal plants that burn natural gas to produce electricity. Unlike the neighboring country, Spain has a large unused capacity of these plants, which at the time was considered a key guarantee of supply at a time 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 will maximize our production with gas until the interconnector is saturated,” he stressed. Peter GonzalezDirector of Regulation of Aelec, at a press conference held in Madrid this Monday.
The interconnection between Spain and France is very small compared to other European countries: it accounts for barely 2.8% of the total capacity of the Iberian system. That was the argument that Madrid and Lisbon put forward for Ursula von der Leyen and her team to agree to the mechanism, and that is today the biggest brake on exports not growing any more: if it weren’t for that physical limit that would increase even more given the widening price differential between the two countries. The new submarine cable, which will connect both countries through the Bay of Biscay, is scheduled to go into operation in 2027 after years of delay.
No from Brussels to the double auction
To try to avoid selling subsidized energy to the neighboring country, the Spanish government’s initial proposal to the European Commission went through a double call that provided two different prices: one for the peninsula and one for the exchange with France. However, Brussels refused. Following this refusal by the community executive, and to mitigate the negative impact on national consumers’ pockets, 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 businesses. The outcome of this solution remains to be seen.
Beyond the Pyrenees, Spain has two other active connections: with Portugal and with Morocco. Aelec provides a smaller variation for both. Since in the first case the gas cap applies to the entire peninsula, the balances remain as before: there will be import and export days on the Iberian market. The net result will hardly vary for the second either: “Until now, we only had an export balance, which will increase. What happens is that the relevance of the two links [con el país africano] it’s not as big as the French one,” says González.
Savings on the rise
Electricity employers calculate that the fuel cap has resulted in savings of just over 11% in the first four days since it was activated. The first two days — Wednesday and Thursday — when high temperatures boosted consumption and renewables were far from their usual records — little wind, haze, and lots of heat that hampers the efficiency of solar panels — were the fewer savings days : 6%. On Friday and especially on Saturday, when these conditions began to disappear, the reduction caused by the gas price cap rose to 11% and 22%, respectively.
“It is difficult to assess the savings of the first days: it was an atypical period, in which very high demand and high remuneration coincided. We should start to see some savings this week when temperatures are set to drop significantly. Will it reach 30% [previsto por el Gobierno en el mercado mayorista]? It’s still hard to know,” González decided.
Asked whether the expectations of a reduction in the bill processed by Pedro Sánchez’s board (a decrease in the bill from customers in the regulated market of between 15% and 20%) will be met, Aelec’s head of regulation chose not to say: ” It will depend on weather conditions, renewable energies and gas price. The savings we saw were less than expected, but over the past few days they have increased and will continue to do so.”