Spain is pursuing an energy transition model based on renewable energies, electrification, and the development of decarbonised gases, with growing interest in renewable hydrogen. The strategy gives importance to the concept of strategic open autonomy and Just Transition, while it is presented as a lever for reindustrialisation and economic growth. As in many parts of the EU, this transition is proceeding at different speeds, with the electricity sector leading the way, in contrast to the transport sector, which is lagging due to socio-economic reasons, and the harder-to-abate industrial emissions. The Spanish Recovery and Resilience Plan, mainly financed with Next Generation EU funds, is expected to be a catalyser for an accelerated investment effort in the energy sector. It has a budget of 69 billion euros, of which 28 billion euros, equivalent to 40%, is associated with the Energy Transition.
Decarbonisation of the power sector
The decarbonisation of the electricity sector in Spain is progressing at a strong pace with penetration of low carbon generation of 71% in 2021 thanks to the increasing contribution of renewable energies (48.4%) and legacy nuclear (22.6%). Since 2018, Spain has managed to recover the pace of renewable energy installations that had characterised the decade 2003-2012, after a hiatus associated with cuts in the renewable remuneration scheme in the context of the European financial and debt crisis. By 2030, the Spanish National Energy Plan (NEP) projects an increase of wind-installed capacity from the current 29 GW to 50GW while solar installed capacity is expected to rise from the current 17 GW to 39GW. To reach this target, the Ministry for the Ecological Transition is supporting a renewable development model that combines large wind and solar projects through public auctions with a strengthening of the role of energy communities and decentralised solar, which did not develop to the level of other European countries in the last renewable energy boom. The Recovery and Resilience Plan focuses on supporting the development of floating offshore wind, following the 2022 Roadmap for offshore wind, energy storage, and the development of innovative energy communities, leaving the deployment of established renewables such as onshore wind and solar to the market.
The decarbonisation of the electricity system has also been reinforced through a rapid closure of coal electricity generation and mining, which has gone from 18% in 2005 to less than 5% of the national electricity production today, being substituted by renewables and natural gas. This closure has been forced by increasing air quality standards required of thermal power plants and successful negotiations between government, industry, and trade unions in coal-mining regions. The decline in coal-fired power generation has led to the closure of 7,000MW of installed capacity for profitability reasons in the last five years, leaving only 3,500MW operational, and reducing the capacity for gas-to-coal fuel switching in the event of high prices or supply crises.
By 2030 and according to the NEP, natural gas plants are expected to play a significant role in the Spanish power system, ensuring backup generation for the variability of renewables and offsetting the coal and nuclear phase-out program in Spain scheduled by 2028-2035. As part of the decarbonisation of the gas sector, the Recovery and Resilience Plan has dedicated a 150 million euro support line for biogas, a sector in which Spain was lagging behind other Member States. Biogas and biomethane are seen in a very positive light as part of the transition to a circular economy and the creation of wealth and jobs in rural regions.
In response to the Ukrainian crisis and record-high gas prices, the Spanish and Portuguese governments succeeded in May 2022 in getting the European Commission to authorise intervention in the Iberian wholesale electricity market. The measure, known as the “Iberian Exception”, applies a maximum natural gas price of 40 euros per megawatt hour for the wholesale market auction, compensating fossil electricity producers separately by the same consumers. In addition to considerable savings in the final wholesale market price, estimated at 25% for the first three months, as an unintended effect, partially subsidized electricity exports to France have increased to record highs, hindering EU-wide energy saving commitments for the winter of 2022/2023 and very likely increasing the carbon intensity of the Spanish power system. The measure seems to have appeal to several European governments, which have proposed similar interventions at the European level.
One of the key elements associated with the decarbonisation of the electricity sector in Spain is the construction of new interconnections. By 2030, Spain expects to further increase its electricity integration with Portugal, reaching an exchange capacity of 3.000 MW, while it is expected to build new cables with France to increase the exchange capacity to 8.000 MW from the current 3.500MW, a strategic project that faces political reticence from Paris but is vital to reduce the energy isolation of the Iberian Peninsula. Electricity exchanges with Morocco are also expected to increase through the existing capacity of 900MW.
Industrial energy transition
The Ministry for Ecological Transition and Demographic Challenge (MITERD) has strongly advocated for the development of PPAs making compulsory a minimum cover quota of 10% of the energy consumed by the electro-intensive industry and offering state guarantees as collateral for these contracts. Spain has become one of the most prolific regions in Europe for physical and financial PPAs, mostly solar, accounting for 40% of the MWh closed under this formula in the EU during 2019 and 2020. Although the recent rise in energy prices has forced the temporary closure of several industrial sites, the Spanish industry is expected to increase its competitiveness over the next decade through electrification accompanied by renewables and price visibility with long-term contracts.
Following the initiative set by the European Commission, Spain published its Hydrogen Roadmap in 2020, giving a leading role to renewable hydrogen in the Recovery Plan and industrial energy policy. The total budget allocated to hydrogen in the Recovery Plan is 1.5 billion euros for the period 2021-2027, with which Spain is expected to reach the established targets of 4GW of installed electrolyser capacity by 2030. When it was published in 2020, the Spanish Hydrogen Strategy focused on the creation of hydrogen valleys that could concentrate production and consumption, attracting economic activity associated with the molecule. The Russian invasion of Ukraine and the EU Commission's call in the REPowerEU to increase the level of ambition for renewable hydrogen has led to a change in Spanish hydrogen policy, now with a reinforced external dimension as a contribution to a geopolitically more resilient Europe. Hydrogen is also part of the Just Transition package and is expected to support decarbonisation and regional industrial restructuring in sectors such as steel, refining, petrochemicals, fertilisers, and ceramics, while providing a source of low-carbon fuels for maritime, road and possibly air transport.
Energy transition in transport
Spain is lagging in the rollout of electric vehicles with a market share of 5.9% in 2021 against the 17% of the EU average. As a response, the Government has launched a specific Electric Vehicle support line of 4 billion euros to promote electric vehicle innovation, manufacturing, purchases, and infrastructure. Charging points are one of the missing links in transport electrification, with less than two public charging points per 100 km2 and a structural limitation on its private installation with 65% of the population living in flats, against the 45% of the EU average. Spain, the EU's second largest car manufacturer, faces stiff competition to maintain its manufacturing capacity without a national champion, growing tensions in supply chains, and a small domestic market share of electric vehicles.
Energy policy response to the Russian Invasion of Ukraine and gas diversification
Despite its low dependence on Russian hydrocarbons, Spain has adopted a proactive strategy to contribute to the European Union's energy security to the extent that its limited gas and electricity interconnections with Europe allow. Spain has the largest LNG import capacity in the EU, with six regasification terminals, as well as pipelines with Algeria, Morocco, Portugal and France. Thanks to this highly redundant infrastructure, over the past two decades, Spain has enjoyed great flexibility to arbitrage between imported pipeline gas from Algeria and international LNG cargoes. Nonetheless, the insufficient gas interconnection with France has prevented a relevant contribution of Spanish LNG to the diversification of gas supply in the EU during the Ukraine crisis. The Spanish-German proposals to build the Midcat pipeline have encountered resistance from France, historically reluctant to energy interconnections with the Iberian Peninsula. On October 20, at a France-Portugal-Spain trilateral summit, it was decided to permanently abandon the MidCat project in favor of a new green submarine interconnection between Barcelona and Marseille. The BarMar will be designed to transport green hydrogen and only temporarily and minimally will it be able to transport natural gas. This is an important step in the medium term to increase the integration of the European energy market, consistent with decarbonization goals.
Moreover, in November 2021, Algeria unilaterally decided not to renew one of the two pipelines connecting North Africa to Spain, the Maghreb-Europe pipeline. Although this decision was intended to punish Morocco, Spain lost its most important international pipeline, halving its capacity to import Algerian gas. Subsequently, Spain's change of position on the status of Western Sahara has led to a deep rift with Algeria which, while respecting signed contracts, has restricted the potential for energy cooperation. These developments have led Spain to increase LNG imports, with US cargoes now competing with Algerian gas as the main supplier.
With the support of the European Commission's Representation in Italy.
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