Spain and Portugal hoped to cut energy bills by capping the the price of #naturalgas in day-ahead power auctions. The policy has been condemned as a failure, but the story is more nuanced than that. A mini-🧵
A deeper look at Iberian energy flows and prices suggests the cap is alleviating the worst effects of a demand spike & solar/wind output flop. It obvs doesn't help that gas is unbelievably expensive in EU right now. This pushes up the adjustment cost payment to CCGTs
The gas cap could also improve EU energy security by encouraging an influx of #naturalgas and #LNG into the Iberian peninsula which is then re-exported as #electricity into France - which is facing extremely tight capacity margins due to widespread nuclear outages
How so? The gas cap drives Iberian power sector demand for gas, which (could) *increase* prices in MIBGAS (Iberian gas market). This wd draw gas/LNG into 🇪🇸ESP &🇵🇹PORT
The cap also *reduces* wholesale Iberian power prices, incentivising exports from Iberian peninsula into 🇫🇷FRA
So the cap distorts the market by pulling molecules into Iberia, incentivising combustion & pushing gas-fired electrons out of Iberia
This is a clever way to make better use of spare Iberian #LNG import capacity that can't help alleviate infrastructure bottlenecks in NW Europe
Sadly, Spanish power exports are already hitting capacity constraints on ESP-FRA interconnectors. With better elec. connectivity, interventions like this can link up energy infra across EU w/out need for splurging more on gas pipes & LNG terminals that might be redundant in 2030s
I go a lot deeper into all this in my latest dispatch for @EnergyFluxNews
P.P.S. Interesting piece here arguing for more interconnectors to help renewable power flow into Iberia from northern EU during anomalous weather, rather than driving more gas burn
P*3.S Portugal is probably the biggest loser in all this due to the way renewables are remunerated. Perhaps Lisbon should be seeking EU-level compensation for the price its consumers are paying for the benefit of NW Europe?
P*5.S - Also, energy storage investment is undermined because the arbitrage between high & low prices is reduced. Batteries & hydrogen storage economics are predicated on volatility. We are deep into second/third order effects here.
I enjoyed researching & recording this episode of the @EnergyFluxNews interactive podcast, all about the world’s #coal addiction — and what it means for the #EnergyTransition