The storm is coming to the Iberian Peninsula. And we’re not talking about the weather.
Despite a distinct lack of incentives and slow-to-react governments, there has nevertheless been a huge increase in clean energy technologies in Spain and Portugal in recent years. The next step is dealing with the huge loads that come alongside this, which must be done through intelligent integration. Energy companies must take action by adopting future-proof solutions to emerge from the storm not only standing, but thriving.
Spain: From sun tax to solar surplus
The sun tax was a toll that consumers had to pay for energy generated through photovoltaic systems. Spain, a country with one of the most solar hours in Europe, was the only country in the world to place a tax on the sun.
Although there were exceptions, it still disincentivized solar PV from taking off. However, three years after its introduction in 2018 it was repealed, and a series of reforms to promote the use of solar were introduced. Among other measures, this meant that permits from energy companies were no longer required for installations under 10 kW; the compensation and sale of self-produced energy surpluses was approved; and collective self-consumption, which allows energy sharing amongst several people, became possible.
This signalled an important turning point for Spain, and has had a positive flow-on effect. Simplifying the administrative processes involved in installing PV systems, for example, has in turn encouraged more autonomous communities to offer incentives and subsidies to invest in solar panels.
In 2020, the Spanish government launched the National Integrated Energy and Climate Plan (PNIEC), a bill which took 10 years to adopt. As part of the plan, the government committed to investing 2 billion euros in renewable energy projects in the following five years. They also brought in tax credits, grants and subsidies that encourage renewable energy projects and technologies. These changes helped to grow the nation’s PV capacity by 129% to 20GW between 2019 and 2022.
Revised plans of the PNIEC aim to almost quadruple this figure by the end of the decade to reach 76GW of PV capacity by 2030 – 19GW of which will be for self-consumption. In addition, the country aims to have 22GW of storage capacity in place, in various forms. Solar contributes heavily to the more ambitious plans to reduce greenhouse gas emissions from 1990 levels by 2030 by 32% (up from an initial goal of 23%) and increases the share of renewables to 48% of final energy consumption (up from 42%) – reaching 81% in electricity.
Historical and projected increases in renewable energy generation
At scale, however, PV alone is inadequate. As in many countries where the duck curve is turning into a canyon curve, Spain’s high share of solar means it is experiencing more and more negative residual load, which means more solar power is being produced than is being consumed. In fact, public electricity residual load reached -1.3 GW on the afternoon of the 16th of May, meaning this much renewable power, in this case mostly solar, was surplus energy that was not integrated into the grid. Just a few hours later, residual load (total load minus power generated from variable renewable energy) jumped back to almost 15 GW, and renewables covered just 62% of the load share.
Public net electricity generation in Spain in May 2023
This makes it all the more important to leverage energy storage and flexibility to balance out peaks in supply and demand, shift demand to the right times and enable a seamless transition towards a completely renewable energy system.
Storing solar power
Spain is heavily reliant on solar power generation – by 2030, approximately 26% of overall electricity demand (74 TWH) will be met by solar. This also makes the country particularly suited to shorter duration residential battery storage. In fact, LCP Delta estimates that in 2030, batteries in Spain will have over 300 days when they can charge and discharge within a single day. Iberia’s limited interconnection (and limited import/export capacity) with the rest of Europe makes residential batteries even more important.
As such, the Spanish government also set a new target of 22GW of energy storage by 2030, most of which will be battery storage. Increasing price volatility makes residential batteries more financially attractive by empowering users to consume self-generated energy during periods of peak demand when the sun is no longer shining. Electricity markets are expected to open up in the coming years to allow battery owners to trade electricity on the capacity market.
Portugal: More renewables to meet rising demand
Portugal is one of three countries referred to the Court of Justice of the European Union (CJEU) for failing to turn the EU Renewable Energy Directive into national legislation. The Renewable Energy Directive was adopted in 2018 and sets an EU-level binding target for 2030 of at least 32% renewable energy. Portugal failed to provide the European Commission with “clear and precise information in relation to which national provisions transpose each provision of the directive.”
The European Commission urged Portugal to end energy support and reduce overall dependence on fossil fuels by accelerating the deployment of renewable energy and improving electricity interconnection capacity.
Despite the sluggish implementation of national legislation, Portugal still managed to generate more renewable electricity than its monthly consumption in March. Renewables represented 103.6% of electricity consumption – however they still relied on fossil fuels and imported electricity in some periods. By 2040, renewables are expected to cover the entire annual electricity consumption of mainland Portugal. Just like in Spain, much more flexibility will be needed in the system to guarantee a secure and cost-efficient supply of clean energy to achieve this. The Portuguese Renewable Energy Association (APREN) stresses the need for frameworks that encourage a strong expansion of solar energy as the electrification of heating and mobility increases electricity demand.
Electrification of heating and mobility
In 2022, just 9% of new car sales in Spain were EVs. In June 2023, however, the government introduced a 15% deduction in Personal Income Tax (IRPF) for the purchase of electric vehicles (EVs), set to be in place until the end of 2025. They are aiming to have 3 million passenger EVs on the road by 2030 (5 million EVs in total), up from just 226,000 in 2022.
Portugal has had a number of incentives in place for EVs, helping them to reach 20% (34,000) of all new vehicle sales in 2022. While Portugal’s goals are less clear, the number of EV sales is expected to rise by 234% until the end of the decade to reach over 113,000 sales per year by 2030 – causing a significant corresponding surge in electricity demand.
Huge rise in EVs expected on the Iberian Peninsula until 2030
To encourage the decarbonization of heating, both countries have recognized heat pumps as the future of heating and offer significant subsidies to increase their uptake – Spain subsidizes up to 70% of the investment for new buildings, and Portugal up to 85% of the cost of heat pump installations in new buildings and renovations.
The ability of heat pumps to heat and cool makes them particularly attractive for the Iberian Peninsula. An air conditioner requires up to 440 kW/h annually, which represents around almost 9% of Spain’s average annual energy consumption per capita. Because use of air conditioners is highly synchronized, they can cause a notable rise in electricity demand that could easily overload power grids.
Peak months in the time-of-use schedules for transmission and distribution tariffs
As we see here, Spain is a European outlier as the only country in this group with a peak month in the time-of-use tariff schedule in the summer months – likely attributable to the heavy loads associated with air conditioning in July. And that was before June 2023, according to NASA the hottest June ever recorded.
As a highly efficient all-rounder for electrified heating and cooling, heat pumps are the logical way forward for clean temperature control in the Iberian peninsula. Another important advantage is that they can be combined with other assets and controlled holistically to optimize energy flows, thereby maximizing efficiency and lowering costs.
There is no doubt that a storm of PV, EVs and heat pumps is coming to the Iberian Peninsula. Although regulation in Spain and Portugal has lagged behind in many respects, companies are already acting on recent policy changes and driving the revolution by proactively adopting renewables and electrifying heat and mobility. The two countries are on the precipice of a load storm, meaning energy players must not only ready their umbrellas, but learn to thrive in the new energy landscape.
"Combining rooftop solar with batteries, intelligently controlling heat pumps and EVs to manage demand, and leveraging dynamic time of use tariffs are a few of the key solutions that will set successful energy companies apart in the future."
“The only way to effectively integrate all of these assets to ensure a stabilized clean energy system is by leveraging smart energy management,” says gridX Account Executive Andrea Albergoni. “Each asset works better together than it does on its own. Renewable energy is already exceeding demand in both Spain and Portugal at certain times, but without flexibility we will still rely on fossil fuels. Combining rooftop solar with batteries, intelligently controlling heat pumps and EVs to manage demand, and leveraging dynamic time of use tariffs are a few of the key solutions that will set successful energy companies apart in the future. But to be a leader they must adopt them now,” he adds.
The signs of change are well and truly upon the Iberian Peninsula. Companies in the region must learn from the shifts already experienced in other markets and adopt state-of-the-art solutions before it is too late.