Another New Normal: Nuclear Shutdown In Spain Will Trigger Electricity Price Volatility

Spanish electricity marketSpanish electricity market

José Salmerón (Intermoney) | Two years ago, the current government reached an agreement with the companies that own nuclear power plants for their phased closing.

Spanish regulation does not establish a set procedure for determining the useful life and closure of nuclear power plants. Nor does this have to coincide with a timeframe estimated in the initial project. Like many other engineering works, their operation can be extended with the appropriate preventive and corrective maintenance and replacement of materials, within the strictest safety standards, as in the case of aviation. It seems, therefore, that the decision to close the nuclear plants is exclusively political, as has happened in other countries.

But what effect will the closure of these plants have on the Spanish electricity market?

It seems clear that the first result will be the disappearance of a base electricity generation, with constant power, or almost, in all hours of the year and that in 2020 accounted for 23.6% of electricity demand. This consequence, together with the growth in renewable generation, which is intermittent by nature and difficult to forecast, will mean that the volatility in electricity prices will be even greater than with the presence of nuclear generation. When nuclear power plants stop operating – and in the absence of renewable generation due to temporary shortage of the resource (little wind and low solar radiation) – the energy sold at a price below the marginal cost of the market will be radically reduced. And the price may rise as never seen before in the daily generation market. If we add the disappearance of nuclear energy to what has happened on a good number of days in January (low renewable generation, high electricity demand, high gas and CO2 prices), the final price would have far exceeded the price peaks that occurred at the beginning of the year.

Without nuclear energy, it should no longer be news that the price of electricity goes up or down a lot in a matter of days. It will be the market’s normal behaviour, as a logical consequence of the generation structure we are creating. This fact, which seems simple, has not been taken on board by the politicians who have made the decisions to close nuclear power plants and support the implementation of renewables. It would be a good idea to make people aware of what we can expect from electricity prices and their volatility. In this way, the fact the price multiplies by three or four times from one day to the next will no longer be on the front page of the newspapers. Just another new normal.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.