The Road to Decarbonising Electricity Generation

At an IESE class on energy strategy we recently learnt from Luigi Michi about Italy’s path to decarbonising electricity generation. In this blog Anna Casas Llopart – an energy specialist  and IESE Executive MBA student – applies the same framework to explain Spain’s plans to tackle this issue.

Spain vs. Europe

Decarbonising energy generation is important for reducing carbon emissions and combating the climate change challenge. The European Commission has established a set of requirements based on the Paris Agreement and Clean Energy Package in order to move forward with this strategy. This legislative package requires all state members to elaborate their own national energy and climate plans to meet those obligations.  Below is a comparison of Spain’s decarbonising performance versus the EU goals.

SOURCE: Comisión de Expertos sobre Escenarios de Transición Energética. Análisis y propuestas para la descarbonización.

Spain has also laid out the draft of its energy and climate plan to fulfill its obligations. In fact, Spain is planning to double its current wind capacity and multiply by eight (!!) its current solar capacity.

Impact on the Grid

Yet switching to more renewable electricity production will stress the grid because these technologies are intermittent and variable. This causes two key problems:

  • Quality: the grid needs to provide constant voltage and frequency. This is easy to ensure when electricity is generated by burning fossil fuels. All our electricity distribution infrastructure is built around this. However, solar and wind power production comes in peaks and troughs, which unbalances the grid unless it is carefully managed.
  • Adequacy: times when the sun shines and the wind blows are different to the times when most electricity is used. Balancing supply and demand is therefore harder with renewables compared to fossil fuels.  

This is why other solutions will have to complement the change in the generation mix. Luigi Michi shared the following enablers for this energy transition:

  1. Grid development
  2. Long-term price signals
  3. Market and resource evolution
  4. Storage
  5. Innovation and digitization

Spain, like Italy, is also implementing a number of enablers to support decarbonising efforts. Firstly, it is increasing interconnection with France through a new line expected by 2025.  On the long-term price signal side, Spain is currently working to redesign its distribution and transmission rates as well as implementing a long-term capacity market which will be based on three-to-five years bids. For market and resource evolution, Spain has already legalized the figure of the balance service provider and has opened the TSO balancing market to demand side. Finally, Spain is planning to install 2500MW of energy storage by 2030. Implementation of new digital technologies such as Internet of Things (IoT) and 5G will further facilitate the transition.

The path to decarbonisation will not be easy, and both Italy and Spain have many obstacles to overcome. Yet it is exciting to see the road ahead, and explore the opportunities this transition brings to our generation.