The future of Spain's coal and nuclear plants, both of which are under discussion, can only be decided by the establishment of a clear energy strategy to which producers can adhere, the CEO of Spain's second-largest utility, Endesa, said Wednesday.
Jose Bogas, told analysts on a conference call that the company, which is owned by Italy's Enel, would play its part in the development of the strategic mix for the future but warned that there were pitfalls associated with any nuclear closures, while it would need to be decided "who pays" should there be new laws on the strategic importance of some coal plants.
Spain has established a working group to aid its transition to a carbon-free state by 2050. However, the importance of domestic coal plants has been thrown into sharp relief this year by recent dry conditions that have crimped hydro output and the French nuclear halt at the start of the year that reversed the usual import flow of electricity into Spain.
As a result, the government is said to be preparing a Royal Decree to prevent the closure of some "strategically important" coal-fired plants.
This would be an about-turn for the country's generators, who have already made plans to close the least economic units.
In May, Enel said it would close the coal-fired plants at Compostilla and Teruel (around 1.1 GW each) by 2020.
Bogas said Wednesday that under current market and regulatory conditions it was "not feasible" to invest in them to make them meet the stricter EU emissions standards that come into force on that date.
"We are happy to keep on with coal if, for strategic reasons, the regulator thinks [the plants] should remain in the mix in the future." Effectively, Bogas said that the final decision to close the plants had not yet been taken, but warned: "If you shut down coal early, you may have to add more gas plants in the meantime," to ensure current supply margins.
In that respect, the position of nuclear is even more critical to the supply mix, Bogas said, adding that it would require 7 GW of new gas-fired or 70 GW of new wind capacity to make up for a wholesale nuclear shutdown.
Other side-effects would include increased CO2, a higher pool price, uncompetitive industries, fuel poverty and increased volatility, he said.
Therefore, he said he believed nuclear, where the potential extension of operating licenses is under debate, should remain in the future mix until at least 2040.
The future of the mothballed 466-MW Santa Maria de Garona plant, which Endesa co-owns with competitor Iberdrola, would be clearer following an August 8 government report, he said.
FORWARD HEDGE
In terms of the market, Endesa said it has hedged its forward domestic generation for 2018 at just below its 2017 level as renewable and thermal conditions are seen normalizing in the rest of the year.
While 2017 output has been 100% hedged at an average price of Eur60/MWh, around 32% of its 2018 generation has been hedged at an average of Eur59/MWh, he said.
But, despite an increase in its thermal output and pool prices in the first half, costs of raw material rose at a faster pace, reducing the unit margin by 10% year on year to Eur21.40/MWh.
The remainder of the year should even out some of the extreme circumstances in the first half of the year, Bogas said, adding that extremely weak hydro conditions are seen returning to normal after a very dry second quarter while coal prices, which have nearly doubled, should also fall later in the year, with Q4 prices possibly dropping below the current forward market, he said, without elaborating.
At the same time, Bogas said he sees gas-fired generation still problematic in Iberia.
On the other hand, one sector where the company is eying a rise in output and margins is wind.
Following its absorption of Enel Green Power Espana last year, with 1.7 GW of installed capacity, Endesa has added a further 540 MW from this year's renewable auctions and is lining up some potential take over targets to increase its presence, Bogas said, with adding details.
The company sees its wind business as creating a healthy return on investment, with power prices expected to remain between Eur45/MWh and Eur50/MWh for the 30 years of the life-cycle of the new capacity.
The company said it effectively views the new capacity awarded as merchant plants with an unrestricted upside which are also protected from low prices by the guaranteed floor price.
Bogas said 60% of EGPE's capacity in Spain is already operating as merchant plants.
