Spanish cable, French resistance

Spain and Portugal will be sending joint letters to the EU energy commissioner and French energy minister, urging them to apply pressure on the current plans for interconnections, following April’s blackout in the Iberian Peninsula.

 But are high costs, local resistance, and fears over the impact of cheap imports stiffening Paris’s opposition  to further power links with Spain.

This week we speak to key Spanish and French market experts to unpack some of the issues that the topic of further interconnection raises for the two countries. And for the rest of Europe.

Presenter: Richard Sverrisson

Contributors:

Muriel Boselli - France Correspondent, Montel News

Belen Belmonte - Spain Correspondent, Montel News 

Guests:                     

Ana Barillas - Managing Director, Iberia and LATAM at Aurora Energy Research

Emeric de Vigan - Managing Director, 42 Advisors
 
Editor: Oscar Birk

Producer: Sarah Knowles

Transcript

Richard Sverrisson – Editor-in-Chief, Montel News: 0:08

Hello listeners, and welcome to Plugged In - the energy news podcast from Montel, where we bring you the latest news issues and changes happening in the energy sector. Will April's blackout accelerate cooperation for more interconnectors between Spain and France? That's certainly what the governments in Iberia are pushing for a Spanish energy ministry sources confirmed last week that Spain and Portugal would send joint letters to the EU Energy Commissioner and French energy minister, urging them to promote the delivery of the current plans for power links. But is there resistance from Paris to create more connections with its southern neighbors? Large infrastructure projects are never popular amongst local populations. They're costly, but more importantly, could power Interconnectors with Spain, lower wholesale prices in France. That's what we'll be exploring in this week's episode. I'll be speaking to Spanish and French Eng energy experts later on. But first, I'm pleased to be joined by two of our Montel journalists, our Spain correspondent Belen Belmonte. A warm welcome to you Bellen.

Belen Belmonte - Spain Correspondent, Montel News: 1:14

Thank you Richard.

Richard Sverrisson – Editor-in-Chief, Montel News: 1:15

And our reporter in France. Muriel Boselli, a warm welcome to you, to Muriel.

Muriel Boselli - France Correspondent, Montel News: 1:20

Thank you very much, Richard.

Richard Sverrisson – Editor-in-Chief, Montel News: 1:22

So I be, I'd like to start by asking you a couple of questions. Why is Spain pushing for the construction of the planned cables with France? Why is that so important?

Belen Belmonte - Spain Correspondent, Montel News: 1:34

So right now Spain has 2.8 gigawatts of power interconnection with France, and another link is under construction, which is expected to come online in 2028, and it will increase the transmission capacity to five gigawatts. In addition to these cables, there are two further interconnections projects proposed through the, which would rise the interconnection capacity up to eight. Gigawatts. However even if all these projects were completed, Spain would still not meet the European interconnection target of 10% set for 2020. And of course it won't meet the 15%. Goal for 2030 for Spain. It's very important for all these cables to go ahead firstly to increase security of of supply and to further integrate the country's electricity market with the rest of the European power market. But also to help keep expanding renewables. So without more in interconnection, all that clean and cheaper generation that is expected to grow in the coming years would remain trapped in Spain and Portugal. And this is already a concern for Iberian renewables investors who already faced. Low prices due to these excess supply, but also for the European Commission. Which ones all of Europe to benefit from affordable, renewable energy.

Richard Sverrisson – Editor-in-Chief, Montel News: 3:03

Excellent. And then would've made any difference. Had Spain had more connections with France during the blackout? Would it have prevented the blackouts that we saw in on the 28th of April?

Belen Belmonte - Spain Correspondent, Montel News: 3:13

This was actually one of the first things debated after the blackout. Europe has three gigawatts of frequency containment reserves which are designed to absorb sudden grid imbalances across the continent. And in theory this could have helped. However, the. Problem was that Spain lost access to these reserves after the interconnection with France was automatically disconnected as a safety measure. According to analysts having more interconnection wouldn't have stopped the blackout. But what they do point out is that with greater transmission capacity, the restoration of electricity supply will have been faster.

Richard Sverrisson – Editor-in-Chief, Montel News: 3:57

Absolutely those important points. Thank you, Belen. Muriel, if I can turn to the view from France here what's the French government's position on more interconnection? With Spain?

Muriel Boselli - France Correspondent, Montel News: 4:08

Well, France officially says it supports the development of interconnections, whether with Spain or the UK or Germany. But it also says that investment and operational costs should be shed fairly between countries. This is because. France France, if you look at it on the map, it's right at the center of Europe. So it carries a lot of power just for transmission and this is really quite costly for maintenance reason. No, notably. So the position of a French government is that. It basically, PR should receive some kind of financial support, so it could take the shape of a European cost sharing mechanism to a tax or levy redistributed according to. Okay, so there's, there, there are two levels. The on one hand they say yes. On the other hand they're saying yes, but

Richard Sverrisson – Editor-in-Chief, Montel News: 5:02

absolutely. But what is the view amongst the power industry?'cause there's also potentially is there a fear that more interconnection with Spain could reduce prices?

Muriel Boselli - France Correspondent, Montel News: 5:10

Yeah if you remember 2022, Richard Han would've really loved to have some more interconnection with Spain. But things. Changed tremendously since then and prices have come down. So more interconnections would mean cheaper power coming into France. And so that could be in effect good for consumers, but not so good for French power producers because they are producing power at more expensive rate. And also, we also have this thing in France because we are so focused on nuclear. Power. 70% of our power is produced with nuclear reactors. It might mean more power from Spain might mean that nuclear may struggle to remain economically viable. We already have quite a big debate in France about what we call modulation, which basically means that we change the output of nuclear reactors according to the amount of demand and the amount of renewables at one point, amount of renewables, which are there at one point. This means too much modulation, some say, could be bad for reactors. So we could have a similar situation with more output coming from Spain. Yeah, so not so good not so good for France basically to have more power from Spain. Basically, France has been going very slow on the current bay of bk interconnector, which is now due for 2028, and it's not committing for the two others. We still have no FID for the projects.

Richard Sverrisson – Editor-in-Chief, Montel News: 6:55

Muriel, thank you very much. That's the view from Paris. Thank you. So who will benefit more from further interconnections between France and Spain? To explore what this would mean for Spain. I'm pleased to be joined by Ana Barillas, managing director of Iberia and LATAM at Aurora Energy Research. Warm welcome to you, Ana, and it's great to have you back on the pod.

Ana Barillas - Managing Director, Iberia and LATAM at Aurora Energy Research: 7:17

Many thanks, Richard. It's great to be here.

Richard Sverrisson – Editor-in-Chief, Montel News: 7:19

So France is strong interconnections with Germany, Italy, and France and Switzerland, for example, to the north of Spain. But why not Spain? What's the history here between connecting these two markets? Why is there not more?

Ana Barillas - Managing Director, Iberia and LATAM at Aurora Energy Research: 7:31

Yeah, I think the geography that you know, the Pyrenees Mountain range makes it particularly difficult, I think to interconnect the Iberian Peninsula to, to France. I think that's part of it. Building Interconnectors more broadly is always a bit of a contentious issue in terms of who bears the cost of such interconnectors. And obviously, the Iberian Peninsula is kinda to an end of Europe, right? It is really a bilateral negotiation in many ways between kind of Spain and France to get it done. As you know, the level of interconnection of the Iberian Peninsula as a whole is about. For 5%. Really, if you look at it like the install capacity as the base for the calculation, but Spain is much lower than that is, is about kind of 2.5% which clearly compared to France, which is over the 15% target that the EU has set. It's a big difference in terms of how interconnected it is. And the debate will continue in terms of additional interconnections over the next few years.

Richard Sverrisson – Editor-in-Chief, Montel News: 8:30

Absolutely. I mean, I there, there have been plans over going back several decades, so it seems to be often delayed. But we've heard the Spanish energy minister say that interconnectors between Spain and France are a Europe wide issue. Would you agree?

Ana Barillas - Managing Director, Iberia and LATAM at Aurora Energy Research: 8:45

Yeah, I think, I think that's right. The concept behind a more interconnected Europe has always been one focused on the best utilization of resources across Europe, right? You know, you have regions that have an abundance of kind of wind and solar and Spain and Portugal are obviously here and hydro as well. You have, France and, who can provide a lot of base load energy and the logic is fairly. Simple, right? The, the more interconnections you have, the more diversity of generation resources that you have, the less you're exposed to kind of local events in the different markets. So it, it is very much a, you know, maximizing the utilization of resources across a very varied continent in terms of the availability of natural resources and obviously the resiliency point as well, right? Like you are less exposed to individual issues in each country if you have big interconnection. So yeah, that's always been the logic. You avoid cortel and there's all from these two things, you get a lot of kind of quantifiable benefits. Of course in the case of Spain unfortunately being interconnected to the rest of Europe means being interconnected with France. And this is where it becomes a bit of a political debate when it comes to France and Spain. Iberia probably.

Richard Sverrisson – Editor-in-Chief, Montel News: 10:02

Absolutely. And I think, in the Nordic region, certainly. Cables, and even in, in Germany as well the links, power links between countries is a bit of a political hot potato people say, or increased prices in some areas and lower in others. What's the situation in France and Spain? Is there a case with saying, okay, France would see lower power prices as a result of a more interconnection whereas Spain would see an increase? Or is that again, too simplistic? I know,

Ana Barillas - Managing Director, Iberia and LATAM at Aurora Energy Research: 10:30

I think it is it is. It's simplistic, but it's also not necessarily a bad way of seeing it. Right. The reality is, what interconnections do is it allows power to flow from areas where you have an abundance of it. Which is at the moment Iberia during solar hours to areas where you may not have the same amount of resources. So the same amount of excellence of resources at that time. So the expectation would be that you would. Have a lot of flows from kind of Spain into into France, at least everything else equal in those solar hours where you to have more interconnection. On the other hand, it is slightly simplistic in the sense that power flows depend very much on the structure of bits. In a power market. And there have been studies done actually, which I think is, it's really interesting that basically say what if kind of Europe was completely free of interconnection constraints, so a fully interconnected Europe. And so effectively what you have is an aggregation of demand and aggregation of supply across all of the interconnected countries. And if you were to think about how the merit order looks in that. Case. So you know, the order of the bids of different kind of plans. What you see actually is that solar in Spain, because it's not incentivized to bid deeply negative would actually not be the main kind of cost for the pressing prices or negative prices in France, for example. In fact there would be some hours where. Solar in Spain doesn't even dispatch because what you have dispatching first is all of those deeply negative bits from solar, from plants that are getting subsidies, for example, in know the European countries. And to say that, you know, kind of, what you would get with more interconnections from Spain into France is more negative prices. For example, the reality is that the bigger cost of negative prices is interconnections from other places into France. If you wanna extrapolate that to, the logical conclusion,

Richard Sverrisson – Editor-in-Chief, Montel News: 12:29

I think that's a very important point, Ana.'cause we're not just talking about a two-way interconnection. It's the whole copper plate across, across, across Europe. The whole interconnectedness. And that's a very important point. And I think the devil is always in, in the detail there. But so I think, and that's an important argument, put more interconnection, but why has it taken so long and why have been there been so many delays and propo, postponements in getting those kind of power links between France and Spain? It's not just the topography, is it? Or are there other re regions?

Ana Barillas - Managing Director, Iberia and LATAM at Aurora Energy Research: 12:59

The topography doesn't help. I think that's a reality. The, the next interconnection that's expected to be built, the Bay of Biscuit cake interconnection did suffer some delays because of planning effectively. But I, it does go beyond that, right? Again it goes back to the mismatch of incentives between what Spain would gain from more interconnections and what France would gain from more interconnections now, I think the argument from France is very much that they wouldn't benefit as much as Spain would benefit, and therefore they wouldn't wanna pay a proportional amount even if that's the case. And that is due to the way that consumer tariffs are structured in France, but also the fact that, you have all of this nuclear kind of energy already there. And if anything there's an excess amount of generation in France. Compared to demand, right? So I think it is. Strictly speaking strictly speaking, true to say that the immediate benefit would be probably more to the Spain side than the France side, but I also think it's a bit shortsighted to, to think about it this way because when nuclear was down in France in 2223 the reality is that without the little interconnection and all of the flows from Spain into France, and that was just solar, it was also CCGT capacity. Flowing into into France, France would've had a lot more trouble managing that nuclear decrease, right? So I think over time it is very much a resilience and a security of supply issue. Even if immediately the benefits may not be as obvious.

Richard Sverrisson – Editor-in-Chief, Montel News: 14:32

Absolutely. I think, and then that's a, that's an important point as well in terms of what we're seeing at the moment in terms of climate change, maybe potentially more drought which does affect the nuclear production in France, but will boost solar output in Spain, so that's where neighbors can come to each other's help.

Ana Barillas - Managing Director, Iberia and LATAM at Aurora Energy Research: 14:49

Exactly. Exactly. And that's precise to the logic of increasing interconnection capacity, right? Is removing the very localized risks that you would have if every country in Europe was an island, an energy island and diversify some of this risk a bit more broadly.

Richard Sverrisson – Editor-in-Chief, Montel News: 15:05

There, there is a suspicion as well, Ana, that you know that, in, in France there is resistance to increased interconnection because it would lower prices, the prices the producers there would receive. Do you think that's a valid argument?

Ana Barillas - Managing Director, Iberia and LATAM at Aurora Energy Research: 15:19

Listen, economically, it has to be right. If you remove the constraints between an area where prices are fundamentally lower and allow some of that energy to flow into a price region when prices are fundamentally higher then yes. What you would expect is the prices in the region where they were originally lower to go up and the prices in the region where they are. Where they were originally hired to go down. So I don't think you can argue against that. I think, what then happens and why make, why this is slightly more complicated is because it is not just about the energy flows in a day ahead market, right? It's about how that translates into benefits for consumers. Obviously profitability for the nuclear plans but to some extent as well. It may. Change the requirements for ancillary services in France, for example. And that has a cost that needs to be analyzed as well.

Richard Sverrisson – Editor-in-Chief, Montel News: 16:10

And Ana, I think one of, maybe we don't know what the the results in the investigation, the probe into the blackout are gonna be, although we have some, maybe some ideas about some of the details that caused it. But what. Do you think there'll be an increased urgency for more power links between Spain and France going forward?

Ana Barillas - Managing Director, Iberia and LATAM at Aurora Energy Research: 16:29

I think there'll be a lot of pressure on, on, on pushing some of that kind of forward. So yes, again, it's. Integrating renewables into the system requires a number of different things that you probably didn't need to think about as hard before. There's a lot being said about inertia and synchronous compensators grid forming inverters. But again, interconnections allow allow some of these existing inertia, for example, from all of the nuclear in France to support. Iberian system. So yes, I think it's potentially it's one of many other measures that can be taken, probably one that would take longer to implement, if I'm honest. Partly because of the technical requirements and partly because of the political environment that we've been discussing. But yes I think it does highlight one of the benefits of interconnections and therefore there will probably be a bit more pressure on it.

Richard Sverrisson – Editor-in-Chief, Montel News: 17:22

But it's not gonna happen overnight, as you say,

Ana Barillas - Managing Director, Iberia and LATAM at Aurora Energy Research: 17:24

it won't. It absolutely won't.

Richard Sverrisson – Editor-in-Chief, Montel News: 17:26

But it certainly certainly will increase the urgency. Ana, thank you very much for being a guest on Plugged in the Monte News podcast. Pleasure. It's been a pleasure, Richard. What's the view from France? Do French energy producers and the government agree that it's mutually beneficial? To have more power links. I'm pleased to be joined by Emeric de Vigan, managing director, 42 advisors. Great to have you back on the pods. A warm welcome to you Emrich.

Emeric de Vigan - Managing Director, 42 Advisors : 17:51

Thank you very much, Isha. Thank you. Thank you.

Richard Sverrisson – Editor-in-Chief, Montel News: 17:53

Let's talk about this the issue of Interconnectors. So from the French perspective, why has there been such a delay or why have there not been as many interconnectors between Spain and France as in other parts of the country?

Emeric de Vigan - Managing Director, 42 Advisors : 18:06

Generally, it just takes forever to get all the agreements or green lights to build an interconnector. There's a lot of people who generally not very happy to see a i new eye voltage line passing nearby where the live. So I'd say that's one of the explanation. The second explanation is that it's it's not. Cheap definitely isn't free to build an interconnection. So you need to find the financing and find the right business model, business case to build the interconnection. If you build too much interconnector, then there is pretty much no more value left in Interconnector because there isn't any price spread left.

Richard Sverrisson – Editor-in-Chief, Montel News: 18:48

And how about, concerns maybe from French energy producers and also from the government and regulators that if there is a lot more if there are a lot more imports of cheaper, say Spanish renewable energy coming in, does that undermine the price of French nuclear energy?

Emeric de Vigan - Managing Director, 42 Advisors : 19:04

Yeah. Tech technically it, it can, but looking at the global. France has benefited a lot from interconnection in the last few decades, and I think we should be careful in not, giving too much importance in, in, recent events. I'm not saying we shouldn't care about what happened, of course. But generally speaking France is pretty well. Position country in terms of inter interconnections. In, in the grand scheme of things, France is exporting a lot of nuclear power through interconnectors. And that's pretty positive for the trade balance of the country. So yes, Spain can be a different'cause there we would be importing very low prices. But I wouldn't say that's the main reason for not building more interconnection. I, if anything, the difficulty with interconnection is that it, it tends to harmonize the prices, power prices between countries with very different energy policies if you want. So sometimes it's hiding things that shouldn't be hidden if you want. Okay. Could you explain that? Amari don't get me wrong. I think Interconnectors are really good. For example, historically I think it was very smart to export base load power to Switzerland and import pick load power to Switzerland that, they were able to produce thanks to their specific geography, with a lot of hydro as I was and so on. Now the question is does it make sense to, build so much. Reliance between different countries, where, one country tends to produce a lot of a lot of excess surplus of energy if you want, and has to export it to another countries to avoid expensive curtailment or potentially blackouts or in the other direction. That it makes sense to see a country relying on its neighbor to, finding of supply in terms of spikes, of demon spike, sorry, in the winter, for example. And that's the case for France. France has been shutting down most of its big generation in the last few years, across the last 10 or 15 years. And what happens what happened, I don't know if it can happen anymore, but what happened is that most of this, peak generation was imported from Germany in the winter. And it was the case in 2022, actually, also when the nuclear had massive issues.

Richard Sverrisson – Editor-in-Chief, Montel News: 21:21

Yeah, of course. It works both ways here. Emmerich and now neighbors help out in times of crisis, like in 2022. Wouldn't French industry welcome an influx of no greener Spanish energy, for example, if that would bring prices down?

Emeric de Vigan - Managing Director, 42 Advisors : 21:36

Yes. And you pointing in the direction of the real problem that generators and consumers usually don't have the same goals, a very high price. And consumers, they want a low price. At the country level. So let's talk about France, 'cause we're here to discuss France. The more we export, the higher the wholesale prices go, which isn't great for the consumer. So it could be that the consumers would very much prefer to export less, or only import cheap power from Spain. But then you would end up with too low prices and you would supply. Generators, producer, strugglings, not being able to make any money to cover their costs. So this is why, I mentioned earlier that, it's important to have a harmonized policy, or at least well sought policy if you want. Because ultimately we need to find an equity on prices where both producers and consumers are happy or can survive. Where a low enough price for industrial companies, high enough price for generators.

Richard Sverrisson – Editor-in-Chief, Montel News: 22:36

And that's the crux of the issue here, isn't it? And it gets, can get very political. It can you imagine if the tables were turned emrick and France experienced the type of blackout we saw in Spain, do you think there would be a more of a push for more links, power links with its neighbors?

Emeric de Vigan - Managing Director, 42 Advisors : 22:52

I don't know. It really depends on where the blackout comes from. Only what, three years ago, we were concerned about potential blackouts because we thought we would be we won't, we wouldn't have enough power. Now we're thinking about blackouts because we would've too much power. Could there be a blackout in France? Coming from domestic issues? Yes. You never know. You can have a massive trips at large unit. You can have cyber attacks, whatever is possible. So if that happens would we would we like to have more interconnections? Maybe. I'm not so sure. If the blackout is imported from another countries than it would be a firm No. Go for any more interconnections. I'm not seeing a lot of very clear elements in favor of a significant amount of new interconnections to be honest. And if ev, even if, nuclear was to face a similar crisis to the one in 2022 with the stress corrosion I feel that, politicians would just ask for more peak units, even if they were to be in, reserve, like multiple then I'm able to to reconnect to the grid in case of emergency.

Richard Sverrisson – Editor-in-Chief, Montel News: 23:58

I mean that's very interesting. France would prefer highly polluting, maybe peakers than getting some greener energy from its neighbors. Is that what you are saying? Emeric?

Emeric de Vigan - Managing Director, 42 Advisors : 24:10

I, it seems to me that the public opinion in France, would prefer this solution. Honestly, it's not completely wrong because this peak energy is not really green. What it, when it's imported into France, when France needs to import power from its neighbors, it's very often in a very, non windy, very cold weather situation where you have a lot of coal and gas power stations running across Europe.

Richard Sverrisson – Editor-in-Chief, Montel News: 24:36

No, absolutely. It's that's not always the case. We can't pretend that all imports into France are green and clean. But, for example, if you, I mean, this is a hypothetical situation again, Emeric, but, you know, a number of years now, over the past 10, 15, 20 years, we've seen problems in the summers in France where there's very hot summers. The river temperature's very high in which curtails some of the nuclear production wouldn't this. And if this happens in the summer months, it's also a time of peak solar generation. Wouldn't this be, a way that Spain could come to the aid of France?

Emeric de Vigan - Managing Director, 42 Advisors : 25:08

Yes, but then, in, the summer, the demand is so much lower than in the winter that I would say that we have enough interconnection already, and I'm not sure, we do need a lot more. I'm not sure. We do need a lot more because you know also when you look at a, the flows on the interconnectors they don't always happen at a very high price differentials price differential, at a very high price spread. So does it make really sense to build an interconnection to export power with no spread? I'm not so sure because. I don't know if especially in a situation where the security of supply is not really yet. I think we tend to overdo the summer constraints. Yes, there are constraints on nuclear power station. There's been constraints. I think it initially started in 2003 significant pie spikes in the summer. Since then, EDF has changed their maintenance schedules where. Most of the seaside nuclear stations are made available in the summer to try and avoid that. So I'm really not too concerned, but couldn constraint, especially as we have a lot of solar.

Richard Sverrisson – Editor-in-Chief, Montel News: 26:14

Yeah. As well.

Emeric de Vigan - Managing Director, 42 Advisors : 26:14

Also in France.

Richard Sverrisson – Editor-in-Chief, Montel News: 26:15

Absolutely. Yeah. And it, it's quite sunny in France as well. Let's not forget that. That very true Ric. And so what do you think will happen here in terms of, there's interconnected due to come online 20 27, 28, if I'm not mistaken. Do you think that there could be some urgency to get online before that date?

Emeric de Vigan - Managing Director, 42 Advisors : 26:35

It seems to me that the Spanish government is blaming the blackout on, on France and on, on not enough Interconnectors. Is it really feasible? I'm really not sure. And does it really make sense to push for more interconnection? I'm not sure either. I, personally, not against the fact that a portion of the security of supply relies on other. Countries, surrounding countries, like trying to, import megawatt up during peak hours, for example. I don't think, any country should have to rely on on, on its neighbors for great stability.

Richard Sverrisson – Editor-in-Chief, Montel News: 27:05

Yeah. I think that's great. I, we don't really know the what the reasons were for the blackout. I think we have to wait for some of the investigations and what happens there, and if there is a push for more interconnections seems to be, like you're saying, relying on enables for that type of inertia that's required or that kind of a grid stability or resilience is maybe. A step too far. But do you think then, would you be, I can hear a strong case, Emeric, that may, there is unlikely to be a new interconnection or new power links between Spain and France after the one that's coming online in that, in two or three years.

Emeric de Vigan - Managing Director, 42 Advisors : 27:40

Yeah. That's my view seen from now.

Richard Sverrisson – Editor-in-Chief, Montel News: 27:44

Yeah. And you think that would be the view of the French government and policy makers as well?

Emeric de Vigan - Managing Director, 42 Advisors : 27:48

Yeah. Yeah, because I don't think that's the most urgent investment. There's plenty of other things to look at for the French government in terms of energy I'm looking only.

Richard Sverrisson – Editor-in-Chief, Montel News: 28:00

Yeah, absolutely. There's other priorities and other things that infrastructure that's being planned to be built be before then. Emeric. Thank you very much for being a guest on Plugged In - the energy news podcast. Always great to have you on.

Emeric de Vigan - Managing Director, 42 Advisors : 28:13

Thank you.