Spain considering increasing gas-fired capacity payments

• 10 years ago (2014-03-29)
• Junior Isles

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Government insiders have revealed that Spain is considering increasing subsidy payments for under-used gas-fired power plants in order to pre-empt the potential closure of backup plants.

The government is concerned that Iberdrola and Gas Natural will mothball gas facilities if their flagging rate of investment return is not propped up by stronger capacity payments. But this may prove problematic as Spain’s power subsidies are controversial and have risked breaching EU rules on state aid in the past.

Gas-fired plants, account for 25 per cent of the generating capacity in Spain, but take up only 11 per cent of production since they can only sell to the grid after all available renewable power has been taken.

Spain’s gas-fired plants have been spurned in past years in favour of developing extensive wind and solar generation. Total generating capacity grew to over 100 GW at its peak, against demand of at most only 40 GW, leaving many plants hard pressed to sell their electricity.

But the extensive energy support programmes built up a mountain of debt, and a €4 billion annual deficit, leading to substantial revision and back tracking.

Spain has been consolidating its bloated power sector ever since, with output from gas-fired plants reduced by 32 percent last year and power demand declining in four of the past five years, according to Spanish grid operator Red Electrica Corp.

At the moment it is unclear where the Spanish government would find the available funds to head off the closure of valuable back up capacity.