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Change the energy model?

Chairman 19 April, 2012

* Author: Ignacio Galán *

Spain’s energy sector today is navigating through a storm of uncertainty. Doubts over what the Government will do and the measures it will take to adapt the current model affect all the activities of an electricity company like Iberdrola.

Do we want to change the model? If the answer is yes, the debate needs to focus on what we plan to leave for future generations. I want to emphasize that the big electricity companies have a clear commitment to shareholders, employees, suppliers and society as a whole. Iberdrola has more than 450,000 Spanish savers amongst its shareholders, many of them pensioners for whom dividends are an important supplement to their pension. We shouldn’t forget also that the sector invests around €15 billion a year in Spain, sustains a large and well qualified workforce of around 400,000 in or for the sector, and procures €40 billion a year from manufacturers and suppliers. Also significant is its contribution to the economic fabric of its operating areas, its contribution to the exchequer and to innovative development.

With these elements, we must create a solid foundation for the benefit of consumers, promoters and companies, and which of course generates the employment so needed in Spain. The energy sector has a key role top lay in overcoming the economic crisis: electricity is a key plank in moving the energy model towards one that is more secure, sustainable and competitive.

Right now we have an excess of installed capacity, as a result of bad planning aggravated by falling demand in the current economic crisis. We need to ask whether we should continue to build and produce subsidized power that cost €300 or more per megawatt hour (MWh) when we have too much production at €50 to 70 per MWh? Does it make sense to pay subsidies that make up 20-30% of the tariff so that certain plants can produce when it would be cheaper for them not to? What is the point of incorporating immature technologies into the energy mix, such as solar, with subsidy costs of €4-5 billion a year? Or is it better to assign much smaller sums to improve the technology and make the final product cheaper?

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My point is, what is best for everyone? We would need to ask what Spaniards would prefer: to pay €332 for hybrid solar-gas energy or pay €70 for wind or €121 for photvoltaic? That’s the point: renewables yes, of course, but only the more efficient technologies. We should wait a few years to develop technologies that are still immature today and avoid increasing the deficit in the system to disproportionate levels. Why create a new bubble that all of us will have to pay for? Waiting a relatively short period would give time for the technology to improve and create a solid industry in Spain, the investments would be smaller and the cost to customers manageable.

What are we proposing? A flexible and balanced energy model including different sources, cheaper, more sustainable, with lower emissions and one which creates jobs. It’s perfectly possible to solve the serious problem of the tariff deficit without hurting customers through tariff increases, it’s not a Utopia. At Iberdrola we are proposing a list of of 10 measures that can achieve this goal.

1. Halt unsustainable construction of the more expensive renewable energy, in particular of the hybrid solar-gas technologies (solar thermal), which have the highest cost at present.

2. Remunerate all regulated activities with non-discriminatory criteria: those of networks and all others benefiting from subsidies.

3. Eliminate from the electricity tariff all concepts that should not been paid for by the customer and which make up a large percentage of the tariff.

4. Share the costs of renewable energy among all energy sectors.

5. Assign revenues from CO2 auctions to financing renewable energy, just as the European Union recommends.

6. Unify the pseudo-environmental levies in the already existing electricity tax.

7. A moderate increase in access fees without this having a significant impact on the final price.

8. Revive previously existing measures to incentivate energy efficiency.

9. Deregulate the market more (less regulated tariffs).

10. Share the financing of the deficit as long as it persists among all electricity sector agents and speed the securitization of the present deficit.

We need to be aware that it is indeed possible to reduce system costs, cut the burden for consumers and achieve a more sustainable model. But to do so, we must design a clear and sustainable strategy that makes energy policy a matter of state, remaining fully aware of what is at stake with this reform.


Author: Ignacio Galán
Bio: Iberdrola chairman

One Comment

  1. Mary Simon

    Very interesting

    19 April, 2012 a 10:15

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