Since last November, Spain is exporting energy at record levels. Must go back to 2005 to find such high levels of energy export prices. Our country increasingly sells more energy to neighbors such as France and Portugal, despite the fact that we could use it to supply the demand and thus help lower the price of energy.
¿Why Spain decides to sell that energy instead of taking advantage of it to avoid the need for gas and lower the cost of energy? The answer lies in the interconnections. We explain what they consist of, why they are necessary and why it is good news that exports are growing despite the fact that this may have had a negative impact on the price of energy in our country.
Spain sells energy almost 10 times cheaper than the current market value
Spain has interconnections with Portugal and France from where it sends large amounts of energy. They are pre-established agreements and can get attention that the agreed price is well below the wholesale price that we are seeing and is forecast for 2022.
For this 2022 the auctions have already been carried out and the result is that interconnections have grown by 233%. Thanks to this, the Spanish electricity system will receive 110 million euros, triple last year.
And the price? 33.77 euros per megawatt hour between France and Spain for 600 MW for each hour of the year. A bargain compared to the current wholesale price, but in reality it is the historical record value of these auctions. Energy has been sold to Portugal cheaper, at a rate of €0.14/MWh for 580 MW for each hour of the year.
Spain sells energy to France at €33.77/MWh. It may seem like a bargain compared to the wholesale price, but it is the highest price ever.
If we look at the data from Red Eléctrica de España, we see that interconnections are at their highest and Spain sells much more energy to France than it imports. This phenomenon is seasonal, since in winter its nuclear power plants are closed and it is good for France to receive Spanish renewable energy. It contrasts with the trend of the first years, where more than 80% of the volume were imports. Now that 80% is energy that Spain gives to France.
Given the prices, one may wonder why Spain “gives” energy to France at such cheap prices when we could be using it ourselves. However, interconnections are a key element in understanding the European electricity market and its importance goes beyond the price to which the energy is offered.
What are the interconnections for and what duties does Spain have pending?
Spain has several connection lines with France and is A submarine cable is planned from the Basque Country that will double the interconnection. According to the National Integrated Energy and Climate Plan (PNIEC), three new interconnections with France are planned to reach 8,000 MW. A long way, since currently the interconnection with France is at 2,800 MW through 8 lines.
Interconnections have multiple benefits to optimize the production and obtaining of energy. The first of these is to guarantee continuity of supply. If, for example, our country could not access a certain amount, these interconnections are used to receive the neighbor’s.
They also provide stability and efficiency. This last point is relevant, since allow the disposal of surplus. By doing so at such a low price, this helps keep the wholesale price from rising as much because some of it may be imported energy at low prices.
What type of energy is exported? Mainly those that do not emit CO2. In Spain renewable and in France especially nuclear. As interconnection capacity increases, the total volume of renewable production that the system is capable of integrating is maximized.
Despite the importance of interconnections and their progress, Spain still does not reach the minimum of 10% recommended by the European Union for 2020, also being the only European country to fall short, with 6%, according to the European Network of Electricity Transmission Network Operators (ENTSO-E).
Interconnections are key so that energy is not wasted. And Spain follows the tail of Europe.
“Having a good interconnection helps lower the price. We must not forget that the European Union requires 10% international connections by 2020 and 15% by 2030. In Spain we have not reached 4% with France. And it is a problem Imagine that we started to assemble mills and plates, with a lot of sun. if our interconnection does not allow us to sell the excess energy, we have to stop machines, with the respective economic loss,” explains Joaquín Giráldez, an expert at Ingebau, a consultancy specializing in the electricity market.
Why the price is set so low: today for you, tomorrow for me
As with the PVPC dilemma, the price of energy from these interconnections is considerably cheaper because they are bilateral agreements. Energy shipments between countries are under supervision and it is tried that the level of exchange capacity is always the maximum, maintaining the security criteria.
If we have the €33.77/MWh of the first auction with France as a reference, we can think that it is very cheap, but we must understand that the cost of producing renewable energy is very low. This price is much lower than the one resulting from the marginal system and the impact of CO2 and gas, but it is higher than that of renewables.
All be said, interconnections can also temporarily contribute negatively to the price of energy. According to Theresa Ribera, Minister for the Ecological Transition, the December energy record was due in part to the closure of French nuclear power plants. This implied that France exported the “maximum possible amount of electricity, thus impacting the price of the Spanish wholesale market and the demand for natural gas.” Last November it was sold to France the equivalent to almost the entire photovoltaic production of Spain.
Selling renewables to France this winter has helped our energy prices go up, but the rest of the year they sell us their nuclear energy at a very competitive price.
The interconnections follow the motto “today for you, tomorrow for me”. In winter, Spain gives energy to France because the renewables continue to work but the nuclear ones are closed. But the rest of the year Spain receives energy at low prices thanks to the French nuclear. While we sell renewables at €33.77/MWh, we bought the first auction at €6.21/MWh, for 760 MW of capacity.
Looking ahead, the intention is create an Internal Market for Electricity in Europe (MIE), one where the interconnections are so common that energy can flow freely between all the Member States, standardization of prices is generated and dependence on gas is reduced, since when there is no wind in the North Sea, perhaps the nuclear French companies work or perhaps the sun is radiant in Spain.
Image | Karsten Wuerth