Luis Jesús Sánchez de Tembleque Pedro Linares

1. The liberalization of the Spanishelectricity system and its effects on its environmental performance Luis Jesús Sánchez de Tembleque Pedro Linares

2. THE LIBERALIZATION PROCESS IN SPAIN • Description • Results • ENVIRONMENTAL IMPACTS OF THE ELECTRICITY SYSTEM ONTO • THE LIBERALIZATION PROCESS • ENVIRONMENTAL POLICY APPLIED FOR THE SPANISH • ELECTRICITY SECTOR • Description • Adaptation to the liberalized framework • Success 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:

4. Installed power

5. Electricity production

6. Description: electricity generation. • Peninsula: thermal (50-46%), nuclear (35%) and hydroelectric (15-19%). 4 main electricity generation companies: ENDESA IBERDROLA UNIÓN FENOSA HIDROCANTÁBRICO 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 Distributors Suppliers • Pool price: marginal price determined on the basis of a merit order. • Obligation to bid. • Three negotiating sessions.

7. PRODUCTION 9,480 € Market prices CAPACITY 830 € Regulatory charges Stranded Cost 447 € END CONSUMER DISTRIBUTION 2,648 € EXTRA NUCLEAR COSTS 583 € MARKET 6,523 € TRANSMISSION 579 € RETAILING 251 € Non Peninsular 130 € INCENTIVE Domestic Coal 255 € TOTAL CHARGES 12,985 € INCENTIVE CHP&Renewables 712 € INSTITUTIONS 27 € 7 Description: general regime.

8. Wholesale Electricity Market Futures Market (Standardized products) Bilateral Contracts Management of Technical Constraints Daily Market Ancillary Services Market Intradaily Market Contracts for Differences Physical Contracts SCHEDULED ENERGY Market Operator in co-operation with System Operator System Operator Market Operator Description: general regime.

9. ECONOMIC OPERATION TECHNICAL OPERATION MARKET OPERATOR SYSTEM OPERATOR Management of standardized power transactions Supervision and control of system security & quality of bulk supply Description: general regime.

10. Description: general regime. Daily Market of Generation / Demand + Bilateral Contracts + International Exchanges Basic Daily Program Feasible Daily Program Final Daily Program Restrictions Management Time Market of Ancillary Services Intradaily Market End of programming Management of Ancillary Services

11. Description: electricity generation. 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.

12. Description: special regime.

13. Description: special regime.

14. Description: special regime.

15. Description: special regime.

16. Description: opening of the market time schedule. 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.

17. Description: access to the transmission and distribution network. System based onregulated 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.

18. Description: access to the transmission and distribution network. 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. REGULATORY AUTHORITIES. Ministry of Economy National Electric Regulatory Comission PUBLIC SERVICE OBLIGATIONS Security of supply PUBLIC SERVICEMARKET Universal service

19. Description: transitional regimes. 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

20. Results. 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 prices Other 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. • 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: 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 supply INDICATIVE PLANNING to detect efficient assignment of resources • Liberalized electricity system authorization procedure • Planning provides information at no cost and detect market ineficiencies. OTHERS INSTRUMENTS

23. ENVIRONMENTAL POLICY APPLIED FOR THE SPANISH ELECTRICITY SECTOR. Description. 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.

24. Air pollutant emissions Energy

25. ENVIRONMENTAL POLICY APPLIED FOR THE SPANISH ELECTRICITY SECTOR.

26. ENVIRONMENTAL POLICY APPLIED FOR THE SPANISH ELECTRICITY SECTOR.