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November 16, 2012
Brattle Economist José Antonio García Authors Opinion Piece on the Implications of the EU Industrial Emissions Directive (IED) on Security of Supply in the Spanish Electricity Market
A recent opinion piece authored by Brattle principal José Antonio García argues that the potential closure of plants affected by the EU Industrial Emissions Directive (IED) may have negative consequences in terms of future security of supply in the Spanish electricity market before year 2020. The opinion piece is based on a recent report prepared for the Spanish utility Endesa. The IED establishes new emission limits (for SO2, NOx and particulates) from January 2016 for existing coal- and gas-fired plants in the EU, along with other installations. In Spain, this puts pressure on the owners of fossil-fuel plants to decide this year whether to opt-in to the IED (i.e., agree to meet the IED limits), or to opt-out. The potential emission investment costs to opt in to all coal gross capacity at risk in Spain is estimated at about 2.000 million euros. Opting out means the plants will have to shut by 2023 and will have a restricted running regime from 2016. All other things equal, any decision to opt out altogether may reduce Spain’s reserve margins below the minimum security threshold of 10% (recommended by the system operator) before year 2020, especially in a future scenario in which electricity demand recovers and if generation investments are not undertaken or anticipated to compensate for the potential retirement of coal and gas-fired units plants as a result of IED. The opinion piece concludes that regulators in Spain should take the IED into account when deciding what type of financial support mechanism to introduce (if any) and be aware that the absence of financial support for IED-related investments could encourage early closure of the affected plants, with potentially negative consequences for future security of supply and quality of service in the medium term. Current excess capacity may encourage misplaced complacency. The opinion piece, “¿Amenaza de Seguridad de Suministro Eléctrico?” was featured in Expansión, an economic newspaper based in Madrid, Spain. To reach the full article, please visit the Expansión website.