Report by Banco Sabadell
The EC has authorised Spain’s proposal to create a capacity mechanism valued at €9 billion over 10 years (~€900 million/year) to ensure security of electricity supply. The scheme will remunerate the availability of firm capacity during periods of scarcity, reinforcing the stability of the system and preventing blackouts. It will be allocated through open auctions and the main potential beneficiaries will be combined-cycle plants, pumped-storage hydro, storage facilities and large consumers capable of reducing demand. The cost will be passed on to consumers via charges on their electricity bills.
Assessment: Positive news that the sector has been awaiting for some time. We will still have to wait for the first auctions to be launched (not before the end of the year) and for the auctioned volume, the firmness factors by technology and the competitive dynamics of the auctions to be defined. Currently, utilities have the greatest back-up capacity (combined-cycle and pumped-storage) to be able to participate in these auctions. In particular, Naturgy would have the largest combined-cycle fleet (7,400 MW), followed by Iberdrola (5,695 MW) and Endesa (5,445 MW). To this should be added Iberdrola’s pumped storage (which could add around 3,000 MW of firm capacity). Pure storage (batteries) will gain ground as a back-up technology as it develops.
