Energy Sector

edp spain

Energy Sector in Spain

The Spanish electricity sector is based on a market model, in which regulated activities coexist under a natural monopoly, such as transport and distribution, with others on free competition conditions such as production and marketing. The level of security and quality of electricity supply is high, given the level of investment in the distribution networks in recent years and the existence of a mixture of sources of diversified energy sources, especially if we take into account the low level of interconnections. EDP Spain holds an important place in the various activities of the value chain of electricity.

Production

The security of supply is very good in Spain, with a wide coverage of the demand. It has a diversified mix, in which the installed capacity of renewables, cogeneration and waste accounts for 60% of the total system. The remaining 40% consist of coal plants, combined cycles of natural gas and nuclear, giving the necessary support to the intermittent renewable energies.

The reward of the activity of production is based on establishing a wholesale market. This is a liberalized activity, which means that revenues follow market criteria and there are no entry barriers to new entrants. The market for electricity production is structured in forward markets, daily market, intraday market, solving technical constraints of the system, ancillary services, management of deviations and unorganized markets.

There are several organized forward markets, apart from the possibility of buying and selling bilaterally. Additionally, there is a regulated compensation system, complementary to the market, that tries to encourage the input of new capacity in the market to prevent the closure of those installations (payments for capacity and availability) that ensure security of supply. The high penetration of the renewable sources, included in the previously called “special regime”, has caused its unique regulation - linked to power and technology - to lose its purpose and to regulation now treating these facilities analogously to other conventional technologies (thermal, nuclear and hydraulic) that are integrated into the market. Although today they can still be considered special systems because of their technology and special implications in the system, the differentiated concepts of an ordinary and a special regime were abandoned. The remuneration system for renewable energy, cogeneration and waste is based on the necessary participation in the market share of these installations, complementing market revenues with a specific regulated remuneration to allow these technologies to compete on equal footing with the rest of the technologies in the market.

This specific complementary remuneration will be sufficient to reach the minimum necessary level to cover the costs that, unlike conventional technologies, these cannot recover in the market and this will allow them to obtain an adequate return with reference to the type of installation applicable to each case. EDP is the 4th generator in Spain with a market share of 8% and the 3rd operator in wind power. EDP has a balanced mix, with a power of more than 3,500 MW in capacity from conventional technologies, noted for their flexibility and availability, and 2,200 MW of wind power with a leading position in demand, which reflects the quality of its wind farms.

Distribution

In the case of distribution, the principle of third party access to networks was established, and its remuneration scheme is administratively fixed, according to the cost of the activity.

The distribution network is formed by power lines and voltage transformation elements of less than 220 kV, and communication elements, protections, control, auxiliary services, land, buildings and other necessary supporting elements. Lines with tension equal or greater than 220 kV and facilities for international interconnection or island systems constitute the transportation network. The Electric Network of Spain owns the transportation network as well as being the Technical Manager of the Spanish electricity system operation.

The activity of distribution has a regulated character, under the principle of a single network and natural monopoly, and their remuneration is determined by the Government, which in turn determines the prices they charge for their services (tolls) that are unique throughout the national territory. Distribution of the funds received and remuneration corresponding to each distributor is made by a settlement system. The distributor is responsible for the operation, maintenance and the development of its distribution network, and also has to ensure that its network has the capacity to fulfill, in the long-term, reasonable demands for the distribution of electricity. Other functions of distributors are performing contracts for access to the networks, meter reading of customer accounts and consumer billing. Distributors do not sell electricity.

EDP is the 4th power distributor in Spain with a market share of 4% and leading the quality of service, with the lowest EITRIC (Equivalent Interruption Time Related to the Installed Capacity) in the sector. In addition, it is the 2nd largest distributor of natural gas with a share of 9% and leader in efficiency ratios: Opex (Operating Expenditure) and Capex (Capital Expenditure).

Commercialization

The electricity market is fully liberalized in Spain, where all customers have freedom of choice of supplier.

In the field of commercialization of electric energy, the customer can choose to contract in the open market, directly in the market or from one of the more than 300 existing traders, or to make a contract with the Reference Marketer (RM), for supplies with a lower contracted power of 10 kW, the regulated tariff known as the Small Consumer Voluntary Price (SCVP), unique throughout the whole of the Spanish territory.

There are also fees of last resort, applicable to consumers with vulnerability status and to those who, without meeting the requirements for the implementation of the SCVP, temporarily do not have a supply contract with a marketer in the free market. Thus, the social bond, which offers a discount on the SCVP, will be applicable to vulnerable consumers who meet any of the following criteria: that their current residence has a contractual power lesser than 3 kW, that are pensioners on a low income, that are large families or that all the members of the household are unemployed. Marketers are those companies that have access to the networks of transport or distribution, and acquire energy to sell to consumers or other subjects of the system. They are responsible, among other things, for contracting and paying the corresponding toll to the distributor. EDP is a dual marketing leader in Spain with over 2 million electricity and gas customers. Its activity is focused on its customers and has been recognized by the Index Customer Experience (ICE) as the leading company with the highest proportion of committed customers, those who show their satisfaction with the service received and intend to keep relying on it in the future.

In addition, the Spanish Index of Consumer Satisfaction (SICS) highlights EDP as the best electric company and second best gas company, evaluating aspects such as the level of perceived quality (image, price, service), loyalty and prescription (intention to leave). This fact is at the same time supported by the National Energy Commission (Comisión Nacional de Energía - CNE) whose recent reports highlight that EDP is the company with the highest customer loyalty.

Energy Iberian Market Data

Iberian Data 2017