The Implementation of the Electricity Directive: The Spanish Case

Speaker: Mr Xavier Herrero Sorriqueta, CEO of Iberdrola, presented his company’s activities and the Spanish case.

Iberdrola is the 5th largest private European electricity utility with activities in generation, transmission, distribution and commercialisation.Iberdrola is Spain’s 2nd largest group with a generating capacity of 16.000 MW, occupying the leading position in both and generation. Iberdrola is also involved in the sectors of new energy sources, engineering, consultancy, telecommunications, information systems, real-estate and customer added-value services.

In Spain, the liberalisation of the electricity sector is far beyond the minimal requirements of the EU Directive in terms of time and volume. In October 1999, industries with an annual consumption of 1 GwH (i.e. more than 8.000 Spanish companies, representing 42% of the total market) will choose their provider and by 2007 the market will be fully deregulated.

Within this new Spanish regulation, the government guarantees customers supply through open competition and restricts state planning to transmission. Generating activities are subject to authorizations. The government has also adopted a special regime for renewable energy sources, waste, cogeneration and domestic

Third party access to the grid is regulated and transmission is managed by a grid and system operator, the REE (Red Electrica Espana), together with an independent market operator. While REE is in charge of supervising the technical quality of the grid, the market operator is managing the electricity pool, balancing “supply and demand” and updating the kwh sales price for domestic consumers.

Given the deep changes occurred in the electricity sector by the transposition of the EU Directive, the Spanish government and the involved industries have agreed on costs of transition to competition (CTC’s) contributing to cover the transition related costs for Spanish companies.

These CTC’s are calculated as the difference between the revenues guaranteed by the former regulation and the revenues foreseen for the new model on the basis of an estimated market price of 6 Ptas/kWh, (0.03 Euro/kWh). CTC’s are currently examined by the European Commission in terms of competition and internal market rules.
Against this a/m background Iberdrola’s business strategy is based on an increased efficiency in the core business and a profitable growth in other markets and activities in order to become a global services player.

Iberdrola has significant activities in Latin America and, in the European Union, an alliance with Electricidade de Portugal (EdP) and also some common projects with the Tractebel Group.
Mr Herrero’s presentation was followed by comments from Director General Pablo Benavides (European Commission Ð DG XVII/Energy).

Mr Benavides stressed the outstanding achievement in terms of implementation of the electricity directive in Spain, as a result of constructive negotiations with the involved partners. The customer has become the fundamental focus of attention for the electricity companies, which underlined by Mr Benavides, is one of the major targets of the Directive.
As a result, costs and rates for the customer are decreasing.

Speaking notably about CTC’s, planning, public service obligation, Mr Benavides explained that all these demands, coming from almost each EU member country, require coherent and transparent assessment and will be analysed by the European Commission with a restrictive spirit.Restrictive because derogations are not to undermine the objective of the Directive but are to establish a balanced framework for managing costs arising from the transition process to competition. He appealed for more confidentiality during the analysing process in order to avoid the diffusion of incomplete information.

Mr Benavides concluded that the EU internal market’s aims are liberalisation and deregulation resulting in cheaper consumer prices. However, he mentioned the necessity of reconciling full liberalisation with some regulation and protection for both companies and consumers in order to avoid an uncontrollable open world market situation. The challenge is therefore to find the middle way.

On renewable energy sources (RES) and cogeneration, Mr Herrero briefly explained that his company is promoting and that research is done in biomass and in solar and photovoltaic cells. Cogeneration plants are also existing within the Iberdrola group. He added, however, that RES need to be stimulated through incentives and need to be handled with transparency.

Iberdrola has several nuclear power plants and Mr Herrero declared his full confidence in this proven technology used in the EU. However market conditions are not favorable for nuclear power and Iberdrola is depending on decisions taken by the EU member states. Talking about , Iberdrola does not see any viable future for this technology from a commercial point of view.

Speaking about the diversification and the internationalisation of his company, representing 10% of Iberola’s results in 1998, Mr Herrero explained that major activities are already existing in Latin America.