Energy sector in Spain

The portrait of Spain

This entry closes the year 2023, during which we have reviewed through a series of articles the current situation of the different energy generation technologies, energy demand, decarbonisation targets and emissions, under the slogan “Informed energy transition; 12 months dedicated to informing about energy at national, European and global level”.

As we have seen over the months, we are at a key moment for the energy sector facing new challenges and increasingly ambitious objectives.

Focusing on the energy sector in our country in this article we seek to summarise the situation of each of the energy generation sources analysed throughout the year, as well as the main national issues and challenges that we face in 2023 and will continue to encounter throughout 2024.

Major changes and trends

In Spain, the energy sector has undergone and continues to undergo major transformations in recent years. Some key points include:

• Energy mix: Progress has been made towards a more diversified mix with a significant increase in the share of renewables, such as solar and wind supported by the drive for sustainability.

Graph 1. Spanish energy mix by technology in 2022. Source: REE

• Renewable Energy Targets: Spain has set ambitious targets for renewable energy with the intention of achieving climate neutrality by 2050.

Support measures have been implemented to encourage investment in renewable projects, but due to our high dependence on fossil fuels we maintain annual emissions of 305 million tonnes, 5.7% more than in 2021.

Graph 2. CO2 emissions in Spain 2008-2020. Source: Eurostat

• Challenges: Despite progress, the sector faces challenges such as historical dependence on fossil fuels and the need to modernise the electricity grid.
• Renewables have set the course for energy change in the country in recent years. The agreements signed in the fight against climate change and the maintenance of a common European energy policy based on technological and energy independence, have proved to be a revulsive for our generation and consumption patterns. Linked to this change is the major challenge of adapting electricity grids, which are essential for linking generation and consumption and new solutions must be implemented to maximise the use of renewable resources channelling this discontinuous and unmanageable renewable generation.

Despite the push for renewable generation and the implementation of new policies aimed at combating climate change, we are currently highly dependent on oil and natural gas products.

Graph 3. Final energy consumption by resource in 2021 in Spain. Source: MITECO

Energy sector context and relevance

In Spain the energy sector represents a strategic pillar in domestic and foreign policy with Europe and the rest of the world. The sector’s contribution to GDP is 19.6%, with renewables alone accounting for 1.65% with 21,911 million euros.

The energy sector in Spain has historically been characterised by its scarcity of fossil fuels. According to the latest Eurostat data Spain’s energy import dependency ratio was approximately 66.8% in 2022. This implies that the country imported more than two thirds of the primary energy consumed, while only 31% came from domestic energy sources. Despite the boom in renewable generation, hydrocarbons remain central to the country’s economy with natural gas and oil accounting for approximately 67% of primary energy consumption in 2022.

In terms of final energy consumption, oil products had a share of 46.1%, while natural gas accounted for 20.7%. While it is true that the figures are down 1-2 % compared to 2021, we still have big challenges and a tough road ahead if we want to reach climate neutrality.

Graph 4. Final energy consumption by resource in 2022 in Spain. Source: KPMG Energy institute

This endemic energy dependence of the Spanish sector is higher than the European average, but with a more diversified supplier portfolio than other countries. Eurostat has a section to measure this dependence. In Spain the figure is 69%, with the European average at 60%. We are surpassed by countries such as Italy (70%), Greece (73%), and the most dependent country, Malta (due to its isolated geography), stands out with 97%. Special mention should be made of Norway, with a dependence of -616%, thanks to the availability of its resources, which tip its energy balance towards total independence.

If we look at specific fuels, Spain buys more coal and gas than the European average in terms of total energy consumption. Russia’s position as the main supplier has changed little in recent years, even with the sanction measures resulting from the war in Ukraine. Russia remains the largest exporter of fossil fuels.

Our dependency has risen since 2020. The impact of COVID19 brought our dependence down to historic levels. However, we have seen that as we returned to “normality” in 2021 and 2022, energy dependence has risen again, adapting to our usual pattern of fuel consumption, which has been increasingly eroded by the inclusion of renewables.

If we look at where we have come from, we can see a reduction in our energy dependence of around 10% since 2009, but we are very sensitive to changes in the price of these fuels.

Graph 5. Spain’s energy dependence 2009-2021. Source: Eurostat.

Renewables are gradually managing to reverse this situation. Thanks to the implementation of 8,900 MW by 2022, these avoided the import of 21.4 million tonnes of oil equivalent, with an economic saving of 15.23 billion euros. These figures increased by almost 77% compared to 2021, but mainly because of the cost of these substituted fuels, and not because of an increase in substitution.

One of the basic measures to be applied by European policies is to increase electrification in our daily lives with the increase in electric mobility, the electrification of production processes (tied to the investment cycles of the companies that own the facilities themselves), increased storage, all leading to the need to improve and adapt the transmission and distribution network to support all this new load.

Paradoxically electricity demand from the grid in our country continues to fall year by year as a result of the sum of several factors: on the one hand self-consumption reduces the amount of electricity that users demand from the grid, on the other hand the greater energy efficiency of new technologies also reduces this consumption and finally, the most worrying point is the deindustrialisation of our country, which we must avoid with policies that facilitate the economic activity of small, medium and large industry.

Graph 6. Electricity demand in Spain from 2011 to 2022. Source: REE.

Renewable energy targets

The new PNIEC (Spanish National Integrated Energy and Climate Plan), currently being updated, foresees a much more renewable future, with an increasing substitution of fossil fuels by a combination of renewable generation, electrical storage, and the electrification of the economy and the transport sector.

In 2022, 276,320 GWh of electricity was generated, with a split of 58% renewable and 42% non-renewable.

If we analyse where investment is to be allocated, 40% of it will go to renewable energies, 29% to savings and efficiency, 18% to energy networks and 12% to the electrification of the economy, which should reach 34% in 2030. The scope of renewables is set at 105 GW of new installations in the decade and 22 GW of energy storage in 2030, with a definitive phase-out of coal in 2025.

Graph 7. Distribution by technology of renewable generation in Spain in 2022. Source: REE

If we look at the technology breakdown of renewable generation in 2022, we see that more than 50% of production came from wind and a quarter from solar PV.

Wind power generation in 2022 was 61.6 GWh. Spain is currently the 5th country in the world in terms of installed wind power with a total of 29.8 GWh. We are surpassed by: China with 396 GW, the United States with 144 GW, Germany with 66 GW, and India with 42 GW. If we look at Europe, we are second only to Germany in terms of installed capacity, doubling the fourth place and increasing year by year.

Offshore wind power is starting to take off following the new regulations developed by Spain and tests are beginning on floating platforms, that are adapted to the uniqueness of our coasts. The progress continues at European and at a global level.

Graph 8. Cumulative wind power capacity in 2022 in Europe. Source: Euroreport RE

If we look at photovoltaic installations our country will have 27.8 GW installed in 2022, the fourth country in the world with the highest installed capacity (8.1 GW). We are ahead of China with 106 GW, the United States with 18.6 GW and India and Brazil, with their respective 18.2 GW and 9.9 GW.

The increase in solar energy is insufficient compared to the two predominant technologies, but the rest of the technologies continue to advance.

Despite the reduction in the biogas production rate, an ambitious roadmap is being launched in parallel, which seeks to materialise more and more projects supporting the circular economy and the most efficient use of waste. The market value of biogas in Spain currently amounts to 1,940 million euros with a future forecast of 2,700 million euros in 2030 (5th European country). Currently the ranking is headed by Germany, England, France and Italy.

Self-consumption deserves special mention, with a record in 2022 and historic highs, reaching 2,649 MW and occupying 1.8% of national demand. The disadvantage of self-consumption is the loss, due to generation spills calculated at 19% of the total generated.

At this point it should be noted that the storage is the key element, both to meet the objectives defined in the new PNIEC (Spanish National Integrated Energy and Climate Plan), as well as to solve the dumping and, therefore the waste of energy generated by self-consumption facilities and to make renewable generation more flexible.

Graph 9. Global electricity generation forecast to 2050. Source: IRE

In the future everything points to an increase in the share of renewables in generation, reducing oil and maintaining similar levels in natural gas and coal. High renewable production faces the problem of resource dependence and the necessary flexibility can be provided by storage. All of this is compounded by a transmission and distribution network that is insufficient for the large peak power coming in the next few years. An improvement in these grids would make it possible to have more energy immediately available for storage, produce green hydrogen, pump surplus dams, adapt production and consumption peaks, etc.

Graph 10. of cumulative storage globally in GW. Source: EESA.

At present the global electricity storage capacity is 52 GW and projections for 2050 amount to 945 GW. In this sense, to meet the targets set, an average of 33 GW of new storage should be installed each year between 2030 and 2050, an important challenge if we analyse the historical increase in this type of facility (graph 10). If we consider the data from pumped storage facilities with 3,331 MW of current capacity, we need another vector to support generation peaks by minimising discharges. The solution that fits best and that is receiving the most support from European promotion programmes and Spanish policy would be green hydrogen.

The electrolyser industry continues to consolidate and the first electrolyser infrastructures for the current energy transition are starting to be realised. The large energy demands to generate green hydrogen, together with the currently untapped surpluses of renewable generation would result in an alternative fuel, which can partially replace current levels of fossil fuel consumption.

Graph 11. Global electrolyser industry forecast to 2027.  Source: Energy post Bloomberg NEF

Conclusions

The future is renewable, especially because we have the resources and the capacity to exploit it in a planet-friendly way, and a plan to reach our goals. We are highly dependent on fossil fuels, but the longed-for energy independence is slowly but surely making its way, although we need to accelerate. Climate neutrality is a change of technology, of generation and storage systems, but also of plans to prepare for recycling, reuse and the incorporation of the circular economy as a governing principle of production. Distributed energy is one of the paths to be exploited, and one that most people want to promote with models, such as micro-grid industrial estates and energy communities.

The sector is facing a vibrant and transformational stage in the global energy future, but this path requires social understanding and unity. We should have the firm conviction that the goal we are pursuing is sufficiently valuable to collaborate in the common and complex interests we have to achieve.