[ad_1]
Iberia is well-positioned to compete with – or even replace – the existing energy industry hub in northern Europe, as sectors in Spain and Portugal can demand abundant sunshine, strong winds and mature gas infrastructure, as well as a wealth of industry and managerial expertise. With reliable gas supplies from North Africa, lower electricity prices compared to the rest of Europe and a renewable energy pipeline that stands out on the continent, Spain and Portugal have the potential to evolve into Europe’s new energy powerhouse, according to research by Ristad Energi.
Spain became the third largest exporter of electricity in Europe in the first three quarters of 2022, behind only Sweden and Germany. The key reasons for this were the large deficit in electricity production in France, from where Spain normally imports electricity, in addition to the Iberian price limit for gas-fired electricity generation. This has lowered electricity prices in Spain and Portugal compared to France for much of this year and in turn made electricity exports even more competitive.
The Iberian market has proven resilient during the energy crisis because it does not rely on Russian gas. With limited domestic gas supplies, Iberia gets most of its gas through pipelines from Algeria and through long-term import contracts for liquefied natural gas (LNG). It is estimated that Algerian gas exports to Spain will reach 14.6 billion cubic meters (Bcm) in 2022, and the regasification capacity of Spain and Portugal together represents about 68 billion cubic meters per year, which is one third of the total regasification capacity of Europe. Sufficient regasification capacity allows more gas sources to reach the Iberian gas market. The region imported around 28 billion cubic meters for the first nine months of 2022, higher than last year’s total, leading us to expect total LNG imports to the Iberian Peninsula to rise to around 39 billion cubic meters this year.
The region is expected to have strong growth in total electricity production this year, as well as sustainable growth in the years to come, mainly driven by the massive expansion of renewable energy sources. The share of renewable energy sources in the Iberian electricity mix 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.
“Through a combination of investment, geography and politics, Spain and Portugal managed to avoid or reduce the impact of the European energy crisis.” Ristad Energi is focusing on the Iberian market because the fundamentals indicate that it is becoming a regionally significant energy-industrial hub,” says Carlos Torres Diaz, head of the energy sector at Ristad Energi.
The figure below shows the development of European electricity prices over the last three years. Until 2021, Iberian electricity prices were closely related to other European countries. Both growth and volatility in electricity prices were extreme from the second half of 2021, and by June 2022, Iberian prices were still close to 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 the other selected countries had the prices are two or three times higher.
Related: Officials issue warning to Texas oil country as ‘freak storm’ approaches
Iberia could be expected to have a less painful ride through the energy crisis compared to its European peers, as the Iberian market expects electricity prices to remain well below levels in, for example, France and Germany. The strength traded in the coming months and years is at a much lower level in Spain. In the short term, prices will continue to be suppressed by the price cap on gas-fired electricity, so prices for the coming winter are not directly comparable. But even with long-term contracts – such as annual contracts for 2024 and 2025 – Spanish electricity is expected to be much cheaper than in France and Germany. Spain’s annual contract for 2024 is currently trading at €113 per MWh, more than half the price of the French equivalent at €270 per MWh. This points to a structural advantage in Iberia, as the market currently sees it, and a bright future for power generation in the region.
Strong fundamentals support relatively cheap energy prices. France faces huge challenges with its large nuclear fleet and few other alternatives for power generation, while Germany will struggle for years to reduce its reliance on Russian gas, reduce its share of coal in the energy mix and face a complete nuclear shutdown. Iberia has none of these problems. Spain does not rely on Russian gas, and the Iberian Peninsula has by far the largest regasification capacity in Europe, in addition to imports from North Africa – which together could make the region Europe’s gas hub. Nuclear power will continue to deliver clean and cheap electricity for another decade, and both Spain and Portugal are close to, or have already completed, their plans to phase out coal. Also, the fundamentals for renewable energy sources are positive, with strong growth expected. Total electricity production in Iberia from 1990 to date, as well as Ristad Energi’s baseline forecast for the electricity mix, are shown in the figure below.
Leader of renewable energy sources in Europe in 2030
As 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, over 60% of which comes from onshore wind – and it won’t stop there. The region has ambitious plans, and with the National Integrated Energy and Climate Plan, Spain aims to get 74% of its energy from renewable sources by 2030. Solar PV installations have increased rapidly in recent years, and this is expected to accelerate further. If all goes as planned, solar PV installations will overtake onshore wind farms to account for more than half of the region’s renewable energy by 2030.
In Portugal, offshore wind has a bright future as the government announced last month that it will increase its offshore wind capacity target from 6GV to 10GV by 2030, most likely to be awarded through auctions. Portugal is also on track to host the world’s first subsidy-free commercial floating offshore wind project with a BaiVa permit application for a 600 megawatt (MW) floating offshore wind project off the coast of Portugal.
Iberia to help European gas consumers
The Iberian Peninsula consumes around 40 billion cubic meters of gas per year and is equipped with the infrastructure to receive gas from African pipelines and international LNG cargo.
Iberia has not been affected by the energy crisis and rising prices that have hit European gas hubs and the global LNG market. The peninsula, however, has not had the same need as many other European countries to replace Russian gas, find new supplies and struggle to increase LNG import capacity. In fact, unused Spanish regasification capacity provided valuable support as Spain was able to send more gas to alleviate continental Europe’s gas deficit.
Spain has already transported around 1.7 billion cubic meters of natural gas during the first 10 months of 2022 through its two existing pipelines – the Irun-Biriatou pipeline and the Larrau-Vilar de Arnedo pipeline – on the border between Spain and France. This is four times more than the volume of exports in the same period last year. To use more of its excess LNG import capacity and export more gas to northwestern Europe, Spain would technically be able to deliver more gas through existing pipeline capacity to France, which connects the Iberian Peninsula to the continental European market.
Meanwhile, it was revealed late last week that the MidCat pipeline project, which would have led from Iberia to Central Europe and would have had an annual export capacity of 8 billion cubic meters, had been officially abandoned and would be replaced by a new project called BarMar. The new project is an undersea gas pipeline from Barcelona, Spain to Marseille, 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 funding for the project. This is not the first time that hydrogen has been put on the agenda for the export of Iberia’s renewable potential to help Europe wean itself off natural gas. Cepsa is planning another green hydrogen trade corridor between Algeciras in Spain and Rotterdam in the Netherlands, while Shell is planning a hydrogen supply chain between Sines in Portugal and Rotterdam, to name just two potential projects. Iberia is well-positioned to compete with – or even replace – the existing energy industry hub of Northern Europe, as sectors in Spain and Portugal can claim abundant sunshine, strong winds and mature gas infrastructure, as well as a wealth of industry and managerial expertise. With reliable gas supplies from North Africa, lower electricity prices compared to the rest of Europe and an outstanding renewable energy pipeline on the continent, Spain and Portugal have the potential to develop into Europe’s new energy powerhouse, according to research by Ristad Energi.
For the first three quarters of 2022, the country became the third largest exporter of electricity in Europe, behind only Sweden and Germany. Key factors leading to this include a large shortfall in electricity generation in France, from where Spain normally imports electricity, in addition to the Iberian price cap for gas-fired electricity generation. This has lowered electricity prices in Spain and Portugal compared to France for much of this year and in turn made electricity exports even more competitive.
The Iberian market has proven resilient during the energy crisis because it does not rely on Russian gas. Although it has limited domestic gas supplies, Iberia gets most of its gas via pipelines from Algeria and through long-term LNG import contracts. It is estimated that Algerian gas exports to Spain will reach 14.6 billion cubic meters in 2022, and the regasification capacity of Spain and Portugal together represents about 68 billion cubic meters, which is one third of the total European regasification capacity. Sufficient regasification capacity allows more gas sources to reach the Iberian gas market. The region imported around 28 billion cubic meters for the first nine months of 2022, surpassing total imports in 2021, leading us to expect total LNG imports to the Iberian Peninsula to increase to around 39 billion cubic meters in 2022 .
The region is expected to experience strong growth in total electricity production in 2022, but also sustainable growth in the future, mainly driven by the massive expansion of renewable energy sources. The share of renewable energy sources is expected to increase from 48% in 2021 to 64% in 2025 and 79% in 2030, which will put the region at the forefront of the European energy transition.
Bi Ristad Energi
More top reads from Oilprice.com:
Read this article on OilPrice.com
[ad_2]
Source link
