DECARBONIZE THE ELECTRICITY SECTOR

Renewable energies are available now and they are key to efficiency increasing and decarbonization

Electricity is the best decarbonized energy vector to integrate renewable energies. It also is the sector through which a real increase in energy efficiency can be achieved.

Renewable facilities do not emit CO2 or other polluting emissions, do not generate waste and they are increasingly competitive from an economic point of view. Around 75% of renewable electricity generation in 2030 is expected, increasing up to 2050. To make this possible, it is necessary to:

1. PROMOTE RENEWABLE ENERGY, and encourage competitive mechanisms.

More information about renewable energies

Wind, water and solar renewable energies are key in the fight against climate change, since they do not emit CO2 or other polluting gases. In addition, they neither generate waste nor consume water, being able to produce electricity with respect to the environment. This has turned electricity into a clean energy source par excellence and made electrification of the economy in the only possible way to decarbonize the current economic system. But, in addition to the environmental benefits, renewable energies have many other advantages: they are already competitive, as they have significantly reduced their investment costs; and they offer stability to the economy since, by not consuming raw materials, their production price is known and invariable. They replace fossil fuel purchase spending by local investment, generating employment. They bring technological development and reduce the risk of energy shortages in countries with a lack of fossil resources.

Iberdrola took a strategic decision in 2000 to pursue renewable energies, reaching more than 30 GW of renewables worldwide and being the world leader in wind energy. Iberdrola considers that the development of renewables is sensible and necessary, and for this it supports the development of those renewable Technologies that emit no pollutants and are consistent with an efficient electrical system, regulatory frameworks for renewables that makes possible a reasonable return on investment, since almost all the cost of these plants is an initial investment and they have barely any cost of production. Such frameworks should be based on competitive procedures and ensuringstable remuneration, accompanying the development of renewables with the implementation of regulatory mechanisms that attract investment and ensure supply at all times to maintain the firmness and flexibility of the system, excluding the most polluting facilities. A political, industrial and technological commitment to electrifying transport, and the sector of heating and cooling, which are the most polluting sectors.

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2. DEVELOP AND DIGITALISE THE NETWORK INFRASTRUCTURE, to integrate clean generation, with a stable and predictable regulatory framework that creates suitable environment for investment.

The electrical system is evolving towards a more decentralized system

Nowadays the electrical system is evolving from a unidirectional model (electricity from large power plants to customers) towards a more decentralized and multidirectional system where customers can install generation at their homes (distributed generation). The electricity network will continue to play a key role under this transition. The prestigious Electric Power Research Institute (EPRI) of the United States has published a study on the services provided by the network:

  • Availability of supply: the network allows the customer to be supplied with electricity at all times and in the required amount.
  • Inrush currents: the network provides the instantaneous peak power required to start up the electric motors used in most household and industrial appliances.
  • Quality of voltage: appliances need a certain quality of electricity, which can be achieved through a large interconnected network.
  • Energy efficiency and trading between agents: the connection of many generating units with many consumers allows: the use of those generating units that are most efficient and lowest cost. The development of markets in which energy can be valued and traded (sales of excess production, demand management, flexibility, etc.).

To determine the economic value of these services provided by the network, EPRI calculated the cost of obtaining such a supply through an isolated installation composed of batteries and photovoltaic panels. It concluded that being isolated is up to ten times more expensive than obtaining electricity from the network. The network integrates generation and consumption, minimizing the need for investment and increasing the efficiency of the system; and allows the optimal development of distributed and centralized resources.

Iberdrola recognizes the long term importance of the electricity network and believes that in this new environment regulatory changes are needed to: provide the right signals to encourage the necessary technological and operational innovation for the electricity sector of the future; reform network charging to reflect the fixed and variable costs of the system, so that each customer pays based on their actual network use.

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3. ESTABLISH CAPACITY MECHANISMS that ensure the necessary firmness and flexibility of the system in a sustainable manner. Generation and demand-side resources could participate in these mechanisms.

Electrical market reform, key to succeed

We all want a cleaner world and most countries are clearly committed to renewable energy, on an enduring and widespread basis. Iberdrola, as the world leader in wind energy that has been investing in renewables since 2000 and continues to do so, advocates an energy sector that supports these technologies. The wholesale price of energy, as is the case in other liberalised markets, is determined by supply and demand. In the electricity sector there is a daily market, where generators submit their offers to produce energy in each of the next 24 hours to meet demand. Competition between generators causes them to submit their lowest possible offers (if the offer is too high it will be another generator that sells its energy). Offers will generally be set at a level that at least covers variable costs such as fuel.

But, what happens in the daily market when the penetration of renewable power plants increases? The fuels for these technologies are wind and sun, whose cost is zero, which means that they can submit offers at very low prices. When there is wind and sun, the output from renewables is high, reducing considerably the market price. Renewable electricity is the cheapest solution to climate change. 

That said, if the price obtained by renewables in the daily market is very low, how do they recover the initial investment in construction costs? and what happens when there is no wind or sun? For the latter situation, it is necessary to have firm plants, that is, plants that can be switched on when required, but: How do these plants recover their investments if they produce for only a limited number of hours and therefore have very low incomes in the daily market? The solution to all these challenges is to modernise the electricity market by introducing new long-term markets (in addition to the existing daily market) and establishing, for both renewable and firm plants, competitive and long-term contracts with: auctions for renewable plant necessary to decarbonize and auctions for firm plants to guarantee an adequate supply of electricity at all times. Without these long-term markets it will not be possible to attract the needed investment to address climate change and maintain security of supply at the lowest cost for consumers.

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4. ENCOURAGE EFFICIENT STORAGE WITH THE TECHNOLOGIES ALREADY AVAILABLE, to facilitate the management of the high penetration of renewable energy by 2030 (utilising pumped storage for daily or weekly surpluses and battery storage for hourly surpluses).