Guest contribution: The Spanish electricity market – a critical review

Following the discussion started in our previous post about energy poverty in Spain, guest contributor Aurèlia Mañé Estrada (University of Barcelona) gives us her critical views about the failures of the Spanish electricity market and recent legislative proposals presented by the Spanish governments last June 19th. Professor Mañé Estrada holds a PhD degree from the University of Barcelona, where she currently teaches subjects related to economic policy and international energy systems and relations. She is is a member of the University of Barcelona’s Economic Transition Analysis Group (GATE) and the author of the blog Nuevas cartografías de la energía.

The Spanish electricity market – a critical review

Some days ago two new proposals of law dealing with both the renewable energy generation and self-consumption were presented for public discussion by the government in Spain. It is still too early to evaluate the actual aftermath of both proposals, though the feeling is that everything would be worse. Here I use the word everything, meaning exactly that; meaning that any of the possible components and outcomes of the Spanish electricity system will be worsened.

For those who are unfamiliar with the Spanish electricity system, I will highlight that its most relevant feature is the fact that two companies (Iberdrola and Endesa), actively backed by the other three members of the Spanish Association of Power Industries (UNESA), are and act as an oligopoly. From my point of view, those companies, using a term, which was applied in the late nineties to the former Soviet Union (FSU) countries, have captured the state; or at least they control the legislative branch of the Ministry of Industry and Energy.

The capture of the legislator has resulted in three immoral outcomes, namely:

  • The price of electricity in Spain: why it is one of the highest in the EU? Higher prices are an intrinsic characteristic of monopolies, but in the case of Spain this power of monopoly is aggravated by the fact that in Spain the liberalised market is a place where buyers and sellers mainly belong to the same corporate groups. That means, for instance, that the generation division of Iberdrola or Endesa sell to Iberdrola or Endesa marketing branches. And this is aggravated by the fact, that if you were one of those small firms which are fighting for having a place in the market, you will have to deal with these Spanish titans that de facto manage the mid-stream-related activities.
  • The electricity tariff debt, why does it occur? Theoretically this debt exists because of the difference between the free price, set in the aforementioned market, and the price which results from accounting all real costs of the system (transport, distribution, capacity, etc.). In reality, it happens because since 1997 the electricity system is not anymore considered as a public service and it is not subject to any compulsory plan. As a result, there is a misperception between the investment and costs that the country needs and the investment and the costs that are the result of mistaken private investments. Therefore we, citizens, pay for both of them. The most outrageous example is the case of combined cycle gas turbine (CCGT) power plants. Private companies invested more than 13 € billons in CCGT plants that, right now, are performing at 10-15% of their capacity. Though these facilities are private, companies have imposed their view that consumers must pay for these failed investments because they are considered to be safety or buffer power generation capacity.
  • Last, but not least, UNESA is manoeuvring in order to prevail over anyone through the capture of the legislative system. For the last year and a half, the true target of all the reforms which have been launched – coinciding with the government of the right wing Partido Popular, but in my opinion it would have happen the same with the Spanish socialist party – was to expel the nascent renewable energy industry and companies from the market, mainly through ending with the feed-in tariff that has supported for many years the development of the Spanish renewable electricity sector. The total fulfilment of this mission would happen if the two new decrees saw the light and were implemented. On the one hand, the decree on autonomous self-consumption (i.e., using one’s own electricity production for self-consumption, thus becoming independent of the major electricity companies) states that individual citizens and companies would have to pay a toll tax that administratively would make self-production more expensive than the one sold by big companies. On the other hand, even if in the decree proposal it were not explicitly stated, the new decree on the renewable sector changes all the existing criterions for the remuneration of the energy investments (from the feed-in tariff to the payment for capacity). Unavoidably, this would make most of the existing renewable energy producers, whose financial viability was established on other parameters set by previous regulatory frameworks, go bankrupt.

Why do I consider these changes immoral? The answer is easy: it is because the electricity industry lobby represented by UNESA is impoverishing Spain, for the following reasons.

First, because the way in which the price is set and the way in which the tariff-debt is paid (through and extra-price in the electricity bill) pushed up the price of the electricity to unconceivable levels within a context in which salaries are continuously dropping and unemployment skyrocketing. This would necessarily mean increasing the number of people left without light and heating. Right now if guesses are right about 15% of the families (about 2.5 million people) cannot afford a fundamental right such as domestic energy. So, trough a perverted system of prices and bills millions of people are excluded of the electricity system.

Secondly, because through fake arguments and facts, the system is expelling a small but relevant and already articulated renewable sector which de facto was lowering the daily market of power – because sun and air are free – and was creating wealth – because of the linkage effects – through the creation of new companies, jobs and economic activities. Therefore, the major companies’ lobby is preventing the rise of the disposable income of the Spaniards, via lower electricity prices, and is blocking the creation of new sources of wealth through an energy transition – like the German one – in Spain.

To sum up, the Spanish electricity system is captured by a handful of dominating companies that are impoverishing the Spanish people and economy. From my point of view this is a serious error, but unfortunately not the worst. The worst is that the ultimate goal of these companies –and, of course of their owners – is to have the absolute power for deciding without any constraints what to produce, to whom and at what price. I know that this is already known, but just in case let me finish this post stating that this has nothing to do with the primary source of energy (fossil or renewable) employed for electricity generation. It is just a matter of power: the power to decide who will be in and who will be out.

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