Iberia is well-positioned to compete with – or even replace – the current Nordic energy industry hub as sectors in Spain and Portugal can take advantage of plenty of sunshine, strong winds and mature gas infrastructure as well as a wealth of industrial and managerial expertise. With a reliable supply of gas from North Africa, lower electricity prices compared to the rest of Europe, and a prominent renewable energy pipeline across the continent, Spain and Europe, according to research by Rystad Energy. Portugal has the potential to develop into Europe’s new energy power. .
Spain became Europe’s third largest electricity exporter in the first three quarters of 2022, behind only Sweden and Germany. The main reasons for this are the huge shortage in electricity generation in France, where Spain normally imports electricity, in addition to the Iberian price cap for gas-fired electricity generation. This lowers Spain and Portugal’s electricity prices relative to France for most of this year and in turn, makes electricity exports even more competitive.
The Iberian market has proven resilient during the energy crisis as it is not dependent on Russian gas. With limited domestic gas supplies, Iberia receives most of its gas through pipelines from Algeria and through long-term import contracts for liquefied natural gas (LNG). Algeria’s gas exports to Spain are estimated to reach 14.6 billion cubic meters (Bcm) in 2022 and Spain and Portugal’s combined gasification capacity accounts for about 68 Bcm per year, accounting for 1/ 3 of Europe’s total gasification capacity. The full gasification capacity allows multiple gas sources to access the Iberian gas market. The region imported around 28 Bcm in the first nine months of 2022, surpassing last year’s total, which leads us to expect that total LNG imports into the Iberian Peninsula will grow to about 39 Bcm in the next nine months. this year.
The region is expected to see strong growth in overall power generation this year as well as sustained growth in the years to come, largely driven by the massive expansion of renewables. . The share of renewables in Iberia’s energy mix is expected to grow from 48% in 2021 to 64% in 2025 and 79% in 2030, putting the region at the forefront of the energy transition. European quantity.
“Through a combination of investment, geography and policy, Spain and Portugal have avoided or mitigated the impact of the European energy crisis. Carlos Torres Diaz, head of energy at Rystad Energy, said Rystad Energy is focusing on the Iberian market because fundamentals show that the market will become an important energy industry hub in the region. area.
The figure below shows the evolution of European electricity prices over the past three years. Until 2021, Iberia’s electricity prices are closely matched with those of other European countries. Both the rise and the volatility of electricity prices have been extreme since the second half of 2021, and until June 2022, the price of Iberia remains close to that of other countries. However, after the price cap was introduced in June 2022, the effect was clear – in August electricity prices in Spain averaged 155€ ($152) per megawatt hour (MWh), while selected remaining countries have prices two or three times higher.
Iberia can be expected to experience an energy crisis less painfully than other countries in Europe, as the Iberian market expects electricity prices to be much lower than levels in France and Germany, for example. . Power trades in the coming months and years at much lower levels in Spain. In the short term, prices will continue to be held back by the price ceiling for gas-fired electricity, so prices in the coming winter won’t be directly comparable. But even with long-term contracts – such as annual contracts for 2024 and 2025 – Spain’s energy is expected to be much cheaper than in France and Germany. Spain’s annual contract through 2024 is currently trading at €113 per MWh, more than half that of the equivalent French contract at €270 per MWh. This points to a structural advantage in Iberia, the way the market currently perceives it, and a bright future for power generation in the region.
Strong fundamentals support relatively cheap electricity futures prices. France has enormous challenges with its large nuclear fleet and few other alternatives to power generation, while Germany will struggle for years to come to reduce its dependence on Russian gas, cut rates coal in the energy mix and deal with complete nuclear decommissioning. Iberia does not have these problems. Spain is independent of Russian gas and the Iberian Peninsula has by far the largest gas reuse capacity in Europe, alongside imports from North Africa – which together could make the region a become a gas hub of Europe. Nuclear power will continue to provide clean and cheap electricity for another decade, and both Spain and Portugal are nearing completion or have already completed their plans to phase out coal. Additionally, the fundamentals for renewables are positive, with strong growth expected. Iberia’s total electricity production from 1990 to date, as well as Rystad Energy’s base case forecast for the energy mix, is shown in the figure below.
Leading in renewable energy in Europe by 2030
A pioneer in the European wind industry, Spain is currently the second largest producer of renewable energy in Europe. The Iberian Peninsula currently has more than 50 gigawatts (GW) of installed capacity, with more than 60% coming from onshore wind – and it won’t end there. The region has ambitious plans, and with the National Integrated Energy & Climate Plan, Spain aims to provide 74% of its energy from renewables by 2030. Solar installations The weather has increased rapidly in recent years and this is expected to accelerate even more. If all goes according to plan, solar installations will catch up with onshore wind installations and account for more than half of the region’s renewable energy by 2030.
In Portugal, offshore wind is heading towards a bright future when last month the government announced it would increase the country’s offshore wind target from 6 GW to 10 GW by 2030, very likely may be awarded through auction. Portugal is also on track to host the world’s first unsubsidized commercial offshore wind project with BayWa’s license application for a 600 megawatt (MW) offshore floating wind power project. Portuguese coast.
Iberia rescues European gas consumers
The Iberian Peninsula consumes about 40 Bcm of gas per year and is equipped with the infrastructure to receive both African pipeline gas and international LNG cargo.
Iberia is not immune to the energy crisis and soaring prices that have hit European gas hubs and the global LNG market. However, the peninsula is not in demand like many other European countries in displacing Russian gas, finding new sources of supply and scrambling to increase LNG import capacity. In fact, Spain’s unused gas recycling capacity provided valuable assistance as Spain was able to send more gas to alleviate continental Europe’s gas shortage. .
Spain transported about 1.7 Bcm of natural gas in the first 10 months of 2022 through two existing pipelines – the Irun-Biriatou gas pipeline and the Larrau–Villar de Arnedo gas pipeline – on the border. Spain and France. This is four times the export volume in the same period last year. To take advantage of more of its excess LNG import capacity and export more gas to Northwest Europe, Spain will technically be able to transport more gas through existing pipeline capacity. to France, which connects the Iberian Peninsula with the market in Continental Europe.
Meanwhile, at the end of last week, it was revealed that the MidCat gas pipeline project, which runs from Iberia to Central Europe and is expected to have an annual export capacity of 8 Bcm, has been officially discontinued. canceled and will be replaced by a new project named ThanhMar. The new project is an undersea gas pipeline from Barcelona in Spain to Marseille in France that will gradually replace fossil fuels in the system with renewable gases such as green hydrogen. The prime ministers of Portugal, Spain and France will meet in December to discuss financing for the project. This isn’t the first time hydrogen has been on the agenda to export Iberia’s renewable potential to help Europe phase out natural gas. Another corridor for green hydrogen trade is being planned by Cepsa between Algeciras in Spain and Rotterdam in the Netherlands, while Shell plans a hydrogen supply chain between Sines in Portugal and Rotterdam, which is just that. two potential projects. Iberia is well positioned to compete with – or even replace – the current Nordic energy industry hub as sectors in Spain and Portugal may need lots of sun, strong winds. and mature gas infrastructure as well as a wealth of industrial and managerial expertise. With a reliable gas supply from North Africa, lower electricity prices compared to the rest of Europe, and prominent renewable energy pipelines across the continent, Spain and Portugal, according to research by Rystad Energy. Portugal has the potential to develop into Europe’s new energy power.
In the first three quarters of 2022, the country became Europe’s third largest electricity exporter, behind only Sweden and Germany. Key factors driving this include a huge shortfall in electricity production in France, where Spain typically imports electricity, in addition to Iberian price ceilings for gas-fired power generation. This lowers Spain and Portugal’s electricity prices relative to France for most of this year and in turn, makes electricity exports even more competitive.
The Iberian market has proven resilient during the energy crisis as it is not dependent on Russian gas. While domestic gas supplies are limited, Iberia receives most of its gas through pipelines from Algeria and through long-term LNG import contracts. Algeria’s gas exports to Spain are estimated at 14.6 Bcma in 2022 and Spain and Portugal’s combined regasification capacity accounts for about 68 Bcma, accounting for one-third of total regasification capacity. of Europe. The full gasification capacity allows multiple gas sources to access the Iberian gas market. The region imported around 28 Bcm in the first nine months of 2022, surpassing the total in 2021, which leads us to predict that total LNG imports into the Iberian Peninsula will grow to about 39 Bcm by year 2022.
The region is expected to witness strong growth in overall power generation by 2022, but also sustainable growth going forward, largely driven by the large-scale expansion of power plants. renewable energy source. The share of renewables is expected to increase from 48% in 2021 to 64% in 2025 and 79% in 2030, putting the region at the forefront of Europe’s energy transition.
By Rystad energy
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