2023-12-10 04:04:11
Imagine that all vehicles in Spain were electric. And now there were only a handful of charging points scattered along roads full of potholes and holes. The Spanish electricity system would find itself in an analogous situation due to a network network that cannot absorb the generation capacity that is intended to be introduced under the National Energy and Climate Plan 2023-2030 and the forecasts for 2050.
The International Energy Agency (IEA) itself, in its report “Electricity Grids and Secure Energy Transitions” warns of the risk that the decarbonization of the economy and, therefore, the energy transition cannot be carried out, if improve and expand European electricity networks.
The IEA estimates that it is necessary to double investment in electricity networks between now and 2040 in order to meet climate objectives and thus guarantee security of supply, one of the main risks facing the green electrification process that Europe has undertaken. .
A recent PWC report on the strategic importance of networks highlights that without the development of electrical networks “it will not be possible to penetrate renewable energies, allow the development of electric vehicles and storage or facilitate the connection of the industry that wants to decarbonize, or that industry that wants to locate in Spain due to the competitive prices of electricity, derived from the high availability of renewables.
The European Commissioner for Energy, Kadri Simson, has expressed the urgency of providing frameworks for the development of networks, whose permits to strengthen the network can take up to ten years, because “a green future for Europe is not possible without an improved electricity network.” Therefore, these must stop being a barrier for renewables and electrification and become a powerful enhancer towards a sustainable future.
Also European renewable associations, such as the WindEurope wind association, criticize investment in electrical networks and state that it makes no sense to make more investments in renewables if they are not going to reach consumers.
Brake on investments
The threat of energy companies to stop or even transfer their investments in the face of the Government’s fiscal pressure – in particular the “tax” on the companies’ profits – and the slap on the wrist from Brussels, which does not consider it justified to apply it today, has led to the Minister of Ecological Transition, Teresa Ribera, and Pedro Sánchez to back down and announce a reformulation of the same.
A few days ago, the president of the Association of Renewable Energy Companies (APPA), Santiago Gómez, urged the Government to take measures to prevent electricity production from having zero cost and to ensure that discharges do not occur because not all of it can be used. the energy produced. Gómez also spoke of paralyzing renewable investments.
At the inauguration of the VII National Congress of Renewable Energies, APPA pointed out that “the zero price episodes and discharges will worsen if the increase in renewable power is not stopped.” Furthermore, he warned of a contraction in demand at levels from 20 years ago: “The objectives set and the economic and political situation mean that we must be cautious.” “We cannot waste the energy generated with renewable sources while we bleed the country with hydrocarbon imports of 90,000 million euros annually,” Gómez concluded.
And the electrification process is of such magnitude that it can burst the system. From the electrification of industrial processes based on fossil fuels, the replacement of gas boilers with electric heat pumps, the development of the transport recharging network, battery and solar panel factories, electrolyzers for the production of green hydrogen, electrification of ports, data center integration…
The entire economy will demand more renewable energy, so new connection points will be necessary, both for production and consumption, capable of managing bidirectional electricity flows and adapting to the new needs of all consumers. The case of the Community of Madrid is clear. The southern European data hub will be installed there, which can double the electricity demand of this autonomous community in a very few years. In fact, as the PWC report points out, Madrid has a higher demand projection than Frankfurt, London, Amsterdam and Paris.
Competitive advantage
This unstoppable phenomenon is even more significant in the case of industrial consumers, who want to become electrified due to the competitive advantage derived from the high availability of renewable resources (sun, wind and land) in Spain compared to the rest of the EU countries. In this sense, future markets reflect noticeably lower long-term electricity prices in Spain than in the rest of the European countries, “a key factor when making economic and profitability forecasts for new investments.” PWC points out.
To give an example, if between 50%-60% of industrial heat were decarbonized, the increase in electricity demand would be an additional 200 TWh, which would be 80% more than current electricity demand. But if networks are not expanded, more renewables cannot be accommodated despite the fact that, on a global scale, there are more than 3,000 GW of renewable energy projects waiting for electrical networks.
The draft of the PNIEC 2023-2030 itself already foresees accumulated investments in networks worth 53 billion euros, although the needs are probably greater, since the PNIEC does not sufficiently reflect the necessary increase in electrification, according to the PWC report.
However, the Spanish remuneration framework discourages investment in networks. The average investment between 2015 and 2018 was 1,482 million euros. According to the limits set by the legislation, average investments between 2023 and 2030 would be 2,750 million euros. The figure rises to 5,631 million in the PNIEC 2023-2030, double what the regulation establishes.
But, in addition, the investments projected by this plan represent 0.45 euros for networks for every euro invested in renewable generation capacity, when the IEA believes that double the amount must be invested in networks (0.70 euros), 35% more. . For this reason, it is proposed to be able to advance investments and eliminate the current limit of 0.13% of GDP for the distribution network and 0.075% of GDP for the transportation network.
The impact of inflation
Investors complain that unit values (investment, operations and maintenance, other regulated tasks) have lost 28% of value in real terms due to inflation, which has meant that the networks have stopped receiving around 1,658 million euros of remuneration. The investment unit values were set in 2015 and are not expected to be updated until at least 2026. All this translates into a growing loss of investor appetite in electrical networks and a more than possible march of these investments towards other markets or sectors.
To reverse this bottleneck, the sector demands that the regulator recognize “ex-ante” all the regulated costs and investments that distribution companies are declaring in their audits. Also that a “simpler, stable and predictable remuneration framework” and regulation aimed at energy transition incentives, digitalization of networks and provision of consumer services be established. Not to mention greater planning to avoid the renewable collapse that is already noticeable.
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