IEA Commends Spanish Energy Policy for Stronger Actions on Energy Efficiency and Liberalisation, but Outlines Challenges on Climate Change and Security of Supply

“The Spanish energy sector has undergone many positive changes since the last review, such as the increase of gas-fired and renewable power generation sources leading to reduced environmental impacts, and also the further liberalisation of energy markets. At the same time, the energy industry has coped well with the rapidly increasing demand for energy. Spain now has the opportunity to move further on the path of liberalisation, ensuring that these benefits are lasting and that the potentials are fully realised.” said Claude Mandil, Executive Director of the International Energy Agency (IEA), today in Madrid at the launch of "Energy Policies of IEA Countries – Spain 2005 Review." Mr. Mandil added: “Spain’s energy policy is facing many challenges, but there are solutions that will contribute to all of them. Increasing international energy connections will provide for more competition, reduce CO2 emissions and increase security of supply. Stronger efforts on energy efficiency will also help with emissions and security of supply.”

Spanish security of energy supply is under threat from unchecked demand growth
Spain’s demand for energy has grown rapidly and this growth shows no sign of abating. Spain’s indigenous energy resources are limited, while weak cross-border gas and electricity interconnections and low electricity trade compared to total demand lead to a situation similar to that of an island. This carries risks for Spain’s security of supply that will become greater with increasing demand for energy, as was shown by gas supply interruptions last winter. Increasing interconnection capacity between Spain and the rest of Europe could reduce these risks as well as contributing to general European security of supply. From a security of supply perspective, it is important that the government develops an analysis of the possible consequences of a nuclear phase-out. In the gas sector, the development of underground storage to ensure security of supply should be accelerated.

Market reforms have been successful but need to be taken further
Spain commendably embarked on the liberalisation of its energy sector ahead of the timetable set by the European internal market directives. The market has evolved with a high level of regulation and political involvement. This is now becoming an obstacle for the market’s further development, which could be addressed through transparent regulation by a powerful regulator. Encouraging new entry would also benefit the market. It is important to reduce the risk of market abuse and encourage the development of international energy connections, in particular in the Iberian market.

The Spanish government has also had great success in fostering the fastest growing natural gas market within the EU. Continued high growth will require substantial investments in gas infrastructure. While the government is mandating investment and consumers are shouldering the risk, care should be taken that investment is focused on the most needed facilities. To maximise the benefit of competition, the still considerable market power of incumbents needs to be continuously supervised by the regulator and the independence of Enagás needs to be enhanced.

Achieving the Kyoto Target is a major challenge, but will contribute to security of supply
In the area of environmental protection, major efforts will be required by Spain to meet its Kyoto commitment. By 2003, greenhouse gas emissions had already increased by 41% over the 1990 level, far above the target of +15% in the period 2008-12. There is no national climate change strategy to support measures aimed to reduce CO2 emissions.

Given the challenge in meeting the Spanish greenhouse gas emissions target, energy efficiency has to play a stronger role. The implementation of the E4 Energy Efficiency Strategy will be critical for this, and the recently approved action plan is a very welcome step towards more energy efficiency in Spain. It is a challenge for the government to curb the growing energy demand in the household, service and commercial sectors. Improved enforcement of energy labeling for appliances and the extension of advanced metering should be pursued. Transport is another sector in which demand growth continues unabated. The Spanish government will have to address this with a comprehensive set of measures for urban mobility, increased use of public transport and fleet rejuvenation.

Spain has ambitious targets for renewable energy and takes the third place worldwide for wind generation capacity. The introduction of a new regime for selling renewable electricity in 2004 is to be commended as a first step to incorporate a market-based element. However, care should be taken to ensure that the whole system to promote renewable energy is cost-effective.