1

The liberalization of the Spanishelectricity system and its effects on its

environmental performance

Luis Jesús Sánchez de TemblequePedro Linares

2

• THE LIBERALIZATION PROCESS IN SPAINDescriptionResults

• ENVIRONMENTAL IMPACTS OF THE ELECTRICITY SYSTEM ONTO THE LIBERALIZATION PROCESS

• ENVIRONMENTAL POLICY APPLIED FOR THE SPANISH ELECTRICITY SECTOR

DescriptionAdaptation to the liberalized frameworkSuccess of the environmental policy

• TRENDS DETECTED IN THE ENVIRONMENTAL IMPACT OF THE LIBERALIZED ELECTRICITY SECTOR

3

THE LIBERALIZATION PROCESS IN SPAIN

OBJECTIVE to lower electricity prices because of competition forces.

- Protocol: Ministry of Industry Utilities

- Electric Power Act 54/97

General framework of the liberalized electric sector.

Two types of activities:

LIBERALIZED REGULATED

Generation Transmission

Retail Distribution

Economic management

Technical management

4

Installed powerInstalled power (MW)

0

10,000

20,000

30,000

40,000

50,000

60,000

1990 1991 1992 1993 1994 1995 1996 1997 1998

MW

Fuel+Gas Coal Nuclear Hydro Special regime

5

Electricity productionEnergy produced (GWh)

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

1990 1991 1992 1993 1994 1995 1996 1997 1998

GW

h

Hydro Nuclear National coal Imported coal Gas Fuel Special regime

6

- Peninsula: thermal (50-46%), nuclear (35%) and hydroelectric (15-19%).4 main electricity generation companies: ENDESA

IBERDROLAUNIÓN FENOSAHIDROCANTÁBRICO

10 new generation companies in 2004.Islands: thermal.

- Two generation regimes:GENERAL REGIME: Production > 50 MW (except bilateral contracts).

OFFER Generators Pool-based system Eligible costumers

DEMAND DistributorsSuppliers

Pool price: marginal price determined on the basis of a merit order. Obligation to bid. Three negotiating sessions.

Description: electricity generation.

7

Description: general regime.

DISTRIBUTION2,648 €

TRANSMISSION579 €

RETAILING251 €

MARKET

6,523 €

PRODUCTION9,480 €

TOTAL CHARGES

12,985 €

7

INSTITUTIONS27 €

ENDCONSUMER

Market prices

Regulatory charges

INCENTIVEDomestic Coal

255 €

CAPACITY830 €

Non Peninsular130 €

INCENTIVECHP&Renewables

712 €

Stranded Cost447 €

EXTRANUCLEAR COSTS

583 €

8

BilateralContracts

System Operator

Market Operator

Contractsfor Differences

Ancillary ServicesMarket

DailyMarket

Managementof TechnicalConstraints

Futures Market(Standardized

products)

PhysicalContracts

Market Operatorin co-operation with

System Operator

SCHEDULED ENERGY

Wholesale Electricity Market

IntradailyMarket

Description: general regime.

9

ECONOMIC OPERATION

Management of standardized power

transactions

MARKETOPERATOR

TECHNICAL OPERATION

Supervision and control of system security & quality of bulk supply

SYSTEMOPERATOR

Description: general regime.

10

IntradailyMarket

Market ofAncillary Services

RestrictionsManagement

Daily Market of Generation / Demand

+Bilateral Contracts

+International Exchanges

Bas

ic D

aily

P

rog

ram

Fe

asib

le D

aily

P

rog

ram

Fin

al D

aily

Pro

gra

m

Management of Ancillary Services

End of programming

Tim

eDescription: general regime.

11

SPECIAL REGIME:

Cogeneration

Self-generators Production <= 50 MW Others forms

Renewable energy producers

Not obliged to bid.

Remuneration: wholesale market price plus a premium or economic incentive.

PLAN FOR THE PROMOTION OF RENEWABLE ENERGY

SOURCES: to cover at least 12% of the Spain´s total energy

demand with renewable energies by the year 2010.

Description: electricity generation.

12

Description: special regime.

Annual evolution of gross demand and sold energy special regime in peninsula

0

50.000

100.000

150.000

200.000

250.000

1989 1%

1990 1%

1991 2%

1992 3%

1993 4%

1994 6%

1995 6%

1996 9%

1997 10%

1998 11%

1999 13%

2000 14%

GW

h

Gross Demand Special Regime

Special Regime s/ Annual Gross Demand

13

Description: special regime.

WASTEOTHERS

RENEW.

CHP

WIND

HYDRO

Production during 2000 (TWh)

COGENERATION 17,0RENOWABLE 8,9WASTE 1,6TOTAL 27,5

14

Description: special regime.

Installed power at 2000 (TW)COGENERATION 5,0RENOWABLE 3,7WASTE 0,4TOTAL 9,1

HYDRO

WIND

CHP

OTHERS

RENEW.WASTE

15

Description: special regime.

Parque eólico

16

The liberalization process has been speed up recently, the treshold for eligible

customers was lowered:

INITIALLY: 15 GWh / year consumption.

All consumers regarded as qualified by 2007.

NOW: 1 GWh / year consumption.

All high voltage customers regarded as qualified by July 2000.

All consumers regarded as qualified by January 2003.

Description: opening of the market time schedule.

17

System based on regulated third party access. The access fees for the transmission and distribution system:

are regulated. are determined on the basis of voltage levels and use of the network. reflect all the costs of the system operation. are approved by the Government. are maximun amounts to be charged.

TRANSMISSION: Above 220 kV.

Planning is mandatory.

Responsible for the tramsmission system operation:

MARKET OPERATOR (OMEL)

SYSTEM OPERATOR (REE)

DISTRIBUTION Below 220 kV.

Companies are designated by the Government in each zone.

Captive customers provided by the distribution companies.

Description: access to the transmission and distribution network.

18

UNBUNDLING:

Management unbundling: complete legal separation of the entities engaged in the three regulated activities. The integration into a holding of companies is allowed.

Unbundling of accounts and creation of Chinese walls. Obligation to disclose information.

Description: access to the transmission and distribution network.

REGULATORY AUTHORITIES.

Ministry of Economy National Electric Regulatory Comission

PUBLIC SERVICE OBLIGATIONSSecurity of supply

PUBLIC SERVICE MARKET Universal service

19

SPANISH STRANDED COSTS

CTC regime to compensate to each plant due to an expected decreased of the electricity price in the market to estimated 6 PTA/kWh.

calculates the maximun amount of compensation.

regulated tariff.has a cost yearly recovered in

transmission fees.

Remuneration of capacity reserves to be paid for ensuring that utilities cope with whatever demand of electricity.

Charge to compensate for the abandonment of nuclear plants.

CHP

SUPPORT MECHANISMS to promote Renewable electricity

Demand side management schemes

Description: transitional regimes.

20

Mechanisms designed are functioning correctly. Decisions based on the market signals.

Quite positive Demand has been covered satisfactorily. Power plants are producing based on their economic costs. Eligibility is enlarging very rapidly.

lower electricity pricesOther changes more competition have not been realized yet due to:

change in technology Large degree of concentration of electricity production (ENDESA+IBERDROLA=80%). CTC protect to a certain existing firms. Small capacity of international interconnections. Large increase increase in the special regime production.

Results.

• STRUCTURE AND ORDER REMAIN AS BEFORE THE LIBERALIZATION

• PRICES ARE ALSO MORE OR LESS STABLE

• INCREASE COVERED BY SPECIAL REGIME ENERGY

• NO SPACE FOR NEW INVESTMENTS

21

ENVIRONMENTAL IMPACTS OF THE ELECTRICITY SYSTEM ONTO THE LIBERALIZATION PROCESS

The mayor aspects of the liberalization process wich may affect the environmental impact of the electricity system are those affecting GENERATION:

CHANGES DUE TO LIBERALIZATION EFFECTS

Change in risk allocation. Change in the technology portfolio towards low private cost and less capital intensive technologies (natural gas combined cycles).

Change in dispatch and plannig criteria.

Chage in the role and capabilities of the regulator.

To promote different technologies depending on the national energy policy.

Change in the increase of demand. Its impact will depend on the changes in the technology portfolio.

In the short term: specific impact will improve and general impact will get worse.In the long term: liberalization may worsen even the specific impact,

UNLESS REGULATION INTERNALIZES SOCIAL COSTS. In Spain that aspects are: Natural gas combiend cycle power plants.

Old coal power plants (CTC´s, subsidies).Hydro and nuclear (CTC´s).

22

ENVIRONMENTAL POLICY APPLIED FOR THE SPANISH ELECTRICITY SECTOR. Description.

The spanish environmental policy applied to the electricity sector is composed by:COMMAND AND CONTROL LEGISLATION

The most used instruments. Two types: Emissions control (certain SO2 and NOx limits).

Inmission control (regional and local authorities). Nuclear facilities have specific legislation.

ECONOMIC INCENTIVES attempt to internalize external benefits into the price/cost of certain technologies.

CHP and RENEWABLE ELECTRICITY DEMAND SIDE MANAGEMENT SCHEMES guarantee of supplyINDICATIVE PLANNING to detect

efficient assignment of resourcesLiberalized electricity system authorization procedurePlanning provides information at no cost and detect market ineficiencies.

OTHERS INSTRUMENTS

23

ADAPTATION TO THE LIBERALIZED FRAMEWORK.Environmental policies don´t interfere the liberalization, but changes are expected.

SUCCESS OF THE ENVIRONMENTAL POLICY.Command and control legislation and economic incentives have had a significant success in spain, specially renewable electricity promotion.

TRENDS DETECTED IN THE ENVIRONMENTAL IMPACT OF THE LIBERALIZED ELECTRICITY SECTOR

Decrease of atmospheric pollutant from large power plants: SO2: low sulfur fuels, new technologies, desulphuration plants. NOx: different level of annual hydro electricity. CO2: bellow european averages.

The liberalization is recent, changes might be expected from:Market development.Modifications in the environmental policy.

ENVIRONMENTAL POLICY APPLIED FOR THE SPANISH ELECTRICITY SECTOR. Description.

24

Air pollutant emissions

Emissions from large combustion plants

404550556065707580859095

100

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

En

erg

y (T

Wh

)

500

750

1,000

1,250

1,500

1,750

2,000

Em

issi

on

s (k

t S

O2

& N

Ox)

SO2 NOx EnergíaEnergy

25

ENVIRONMENTAL POLICY APPLIED FOR THE SPANISH ELECTRICITY SECTOR.

NOx emissions in large powers plants in 2000

Refinerías7%Fuel / Gas

6%

Carbón de Importación

14%

Lignito Pardo11% Lignito Negro

10%

Hulla + Antracita50%

Autoproductores (hasta junio 87)

2%

26

ENVIRONMENTAL POLICY APPLIED FOR THE SPANISH ELECTRICITY SECTOR.

SO2 emissions in large power plants in 2000

Hulla + Antracita

23%

Lignito Negro23%Lignito Pardo

34%

Carbón de Importación

4%

Fuel / Gas3%

Refinerías11%

Autoproductores (hasta junio 87)

2%