The National Commission for Markets and Competition establishes the methodology and conditions for electricity labelling to report on the origin of the electricity consumed and its impact on the environment. After performing the necessary calculations, the CNMC obtained and published the electricity labelling corresponding to all the supplier companies that have recorded energy sales in 2021.
These calculations include the contribution of each of the electricity generation sources to the energy sold and their environmental impacts in terms of CO2 emissions, high-level radioactive waste and a corresponding rating from A-G. An ‘A’ rating corresponds to a minimum environmental impact while a ‘D’ rating corresponds to the national generation average and a ‘G’ rating to a maximum environmental impact.
In the same way, the labelling of every one of the electricity trading companies that have participated in the Guarantees of Origin system is also obtained and published. In Spain, as is the case in the rest of Europe, electricity suppliers are required to show the above-mentioned labelling on their invoices to their customers.
Since 2013, the growing interest in renewable electricity among households is also represented by the increase in the number of green defaults offered by suppliers. A green default means that customers are automatically given a green electricity tariff upon signing with a given electricity supplier and customers who want cheaper, conventional electricity have to explicitly ask their power company to supply it.
Fifty-five percent (55%) of electricity suppliers supplied 100% renewables in 2021 down by 13% when compared to figures in 2020. For the first time since 2017, the number of 100% green default suppliers in Spain decreased by 23% in 2021 when compared to 2020 showing a significant decrease in green electricity offerings in Spain last year.
Additionally, a large share of suppliers that had 100% renewable claims in 2020 did not maintain this level in 2021, with statistics showing that some reported levels below 50%.
In Spain, Guarantees of Origin are issued as national GOs (non-EECS GOs) unless at the time of issuing an entitled producer explicitly applies for GOs that can be exported over the AIB hub. Furthermore, if a producer is eligible to receive subsidies/support for generation but wants to export GOs, then the support must be waived on the related energy.
This artificial curb on exports has resulted in two markets for Spanish generation GOs; a domestic Spanish GO market with lower prices and the Pan-European (EECS) GO market with higher prices.
Increase in suppliers exporting most of their production
According to recent AIB statistics, in 2021, Spanish EECs GO exports increased by 44% when compared to the year prior from 21 TWh to slightly over 30 TWh this increase in exports was attributed to it being economically attractive due to the high and rising EU GO prices witnessed throughout most of 2021.
As such the reduction in Spanish electricity suppliers providing 100% renewable energy could have been partly due to most suppliers exporting most of their production-related GOs, especially as EU GO prices began to rise in mid-2021.
Additionally what some suppliers then do is rely on buying domestic Spanish GO supplies to cover their own portfolios and profit on the difference between exported EECs GO sales and domestic Spanish GO purchases.
High EU and domestic Spanish GO prices made it less economically attractive to pursue 100% renewable labelling
However, while normally Spanish domestic GO prices traded at a 10 Eurocent/MWh discount to OTC EU GO prices, in 2021 the spread between these two products began to narrow. When EU GO prices increased significantly last year, Spanish domestic GOs would follow as producers would closely follow OTC market trends and adjust their prices accordingly. On the whole, in 2021, Spanish domestic GO prices were high and it was observed that prices were quite volatile with prices increasing or decreasing partly depending on when and whether a large buyer or seller entered the market.
These high price increases in the EU and domestic Spanish GO markets made it less economically attractive for some suppliers to purchase enough GOs to claim 100% renewable labelling, with some suppliers opting to focus on revenue via exports. Additionally, it could’ve been possible that some suppliers had purchased and secured GO volumes when prices were much lower at the beginning of 2021 and then when prices began to increase switched their focus to exporting.
It could also be possible that with significantly high energy prices witnessed last year and that continued to be high in 2022 that there could have been a switch in focus by some market players in Spain away from the GO market and more so towards the physical power and gas markets which may have played a part in the default reductions.
Some suppliers waited too long and were unable to secure enough EU GO imports and domestic supplies prior to deadlines
Regarding GO imports and domestic purchases in Spain there are two noteworthy dates. The first is 15 February which is the annual deadline for GoO imports into the country and the second is 10 March which is the deadline for the request for transfer, importation, sale or redemption of GOs to a final consumer for 2021 electricity consumption and disclosure by the end of March.
Another possible reason why the number of 100% green defaults fell could be due to the high EU GO prices witnessed throughout 2021.Some market players had adopted a more wait-and-see mentality to observe market movements with the hopes that prices would decrease to more favourable levels. However, some market players were quoted as having waited too long and some were unable to secure enough EU GO volumes by the February import deadlines. Additionally, after the close of these imports liquidity in the market was low and domestic Spanish GO prices became even more volatile prior to the March 10 deadline with domestic GO prices reaching the 2 Euro/MWh mark for 2021 production GOs.
As such, some suppliers continued to have trouble securing enough domestic GO volumes there was also a low supply of domestic GOs especially for 2021 production mainly due to extremely dry weather conditions the year prior resulting in a subsequent reduction in hydro production as well as lower than normal wind speeds in the region. There had been fears about whether market players could secure enough volumes and while some contacted market participants had secured enough volumes some had mentioned that this was not the case for other participants.
This inability to secure enough OTC EU GO and domestic Spanish GO supplies may also have contributed to the reduction in green defaults witnessed.
Similar to the trends witnessed in the EU GO market, Spanish domestic monthly average prices began to increase significantly from February till slightly after the summer period. Spanish domestic GO prices for 2021 production (unspecified renewable generation) increased in price by 450% from March to October 2021 from 18.2 to 100 Eurocents/MWh. This price increase had been partly attributed to a lack of producers willing to sell their GO supplies despite there having been a strong demand from utilities, likely influenced by prices trending upwards in the EU OTC markets and subsequently holding out for higher prices for their GOs.
However, from October till the end of 2021, domestic prices began to drop from an average monthly price of 70.8 Eurocents/MWh in November to 64.9 Eurocents/MWh in December representing an 8% decrease. This price decrease had been partially attributed to a slowdown in demand at the time as buyers adopted a more wait-and-see sentiment as they observed falling EU GO prices, expecting similar trends within the domestic market.
In 2022, Spanish domestic GO prices began to increase again for both the 2021 and 2022 vintage which has been attributed to high demand for the product from market players wishing to secure volumes for disclosure purposes before the 31 March deadline while prices for the 2022 vintage have also increased as market players look to hedging their current year electricity consumption.
While the number of electricity suppliers providing 100% renewable energy decreased in 2021 the share of renewable electricity on the Spanish grid increased.
The country increased its renewable energy installed capacity by 6% from 70.7 GW in 2020 to 74.9 GW in 2021. Despite the global pandemic crisis, this growth in renewables last year was driven mainly by wind and solar energy. Notably, solar photovoltaics had the greatest capacity increases witnessed from 11.7 GW in 2020 to over 15 GW in 2021 showing a 30% growth with over 3 GW of newly installed capacities.
In terms of generation, renewable sources accounted for 121 TWh of power generated in 2021 up by 9.7% when compared to the year prior. Additionally renewables reached a record share of 46.7% in the national power generation mix up by a 43.6% share in 2020. Wind producers came on top last year having the larger share in the generation mix at 50%.
Since the beginning of the year, Spanish domestic GO prices continue to trade quite close to EU OTC prices with spreads narrowing. Market sources have mentioned that this strong movement in domestic prices has been attributed to limited domestic GO supplies against growing demand.
This is mainly since a lot of the newer power plants coming onto the grid in Spain are unsubsidized and export their associated GOs however there is a continued growing limitation in domestic GO supplies as most are related to much older power plants. As such this limitation is expected to continue to provide support towards current Spanish domestic price levels. Additionally, it is due to this domestic supply limitation that most contacted sources believe that there will be a high demand for EU GOs in Spain in 2022.
In 2022, hydro production continues to be significantly lower than normal mainly to continued dry weather conditions and wind production has also been lower than normal and has only started to pick up in April. Should this reduction in production continue the market could expect lower GO supplies from Spain. However, it is of note that solar production in the Iberian Peninsular has been reported to be picking up quite significantly and it is expected that the market will see more focus and demand for solar energy and their associated GOs.
Veyt specialises in data, analysis, and insights for all significant low-carbon markets and renewable energy.
