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What to expect from the Green Revolution in Spain- Published on November 24, 2018

The new draft of the Climate Change Law announced this past 14th of November by the Spanish government has opened plenty of paths for dialogue in the industrial and economic fields, as the announcement alters the future of the industrial sector and the national macroeconomic spectrum, generating a stir environment in both private and public areas.

The proposals that the Ministry for the Ecological Transition has presented to the public, have put the energy and the automotive sectors in roads that converge in the long term, highlighting a future that significantly alters market forecasts and turns around investments made by the industry.

Among the different points that were expounded in the preliminary draft, several vetoes and impositions are seen to be especially important, imitating the sustainable model that the rest of Europe is already fitting into. These points include the controversial prohibition for registration and sale of CO2 emitting vehicles (year 2040), the promotion of decarbonised and energetically efficient buildings, the end of new hydrocarbon exploration and exploitation permits (the existing ones will conclude in 2040), the reduction of the national GHGs emissions (32% until 2030) and the investment in renewable energies (70% of electricity generation by 2030).

Each of these points has generated, to a greater or lesser extent, asperities in several sectors, which seem to feel threatened by the possibility of a change in their already defined structures. Despite this, it is convenient to take a moment and read into the meaning of these changes and how they can be translated.

The most highlighted point by the media, affecting both internal combustion vehicles (diesel, gasoline, LPG, CNG) and hybrids, is undoubtedly the most front opening on the future of the energy the automotive sector, as the transition to electric motors or hydrogen fuel, is synonymous to a big change in the industry. Despite this fact, this shift should be considered what it is; an immense business development opportunity.

It is to understand that large companies will protect their investments until these have been paid off, especially taking into account the exclusion of the hybrid vehicle. However, the marked tendency of the European market to move towards the electric alternative would, eventually, derive to this outcome (The EU already predicted in 2017 that the electric car could dominate the European market in 10 years). That is why, the spotlight should be on the next big race; the complete remodelling of the commercial vehicle fleet.

This unique opportunity will not only provide an increase in competitiveness between companies, but it will also create a new industrial spectrum that will move towards large investments in development and innovation, from which a boost in employment will follow.

Regarding the Eurovignette, no changes have been defined yet. However, even if heavy transport vehicles are not included in these transitional amendments, it is likely that, once the sustainable vehicle takes over, the market itself will absorb this field.

On the other hand, the disappearance of fossil fuels in the transport sector, accompanied by a boost in renewables, mark the real big change where focus should be put on. The homogenisation of the resources that we will used in near future, in replacement of fossil fuels, suggests two reaction fronts in the energy industry; the entrance of electric companies in the transport sector (a field previously dominated by oil companies) and the rapid metamorphosis of oil, gas and refining companies into the electricity generation field.

The threat that oil and traditional refining companies face, also offers several possibilities for the future. In which I emphasise the following;

-         The possibility of a new segregated market in transport and energy. Market in which competition between companies is favoured and therefore there is a growth in quality, a decrease in prices and large investments in innovation.

-         The incapability to adapt to change by oil and gas companies, resulting in a marked dominance of electric companies in the spaces mentioned above.

This new position indicates a future of fierce competitiveness. Competitiveness that is already being driven by the needs and demands of the European and global market, although this amendments surely put more pressure in the industry.

The most favourable outcome inclines, therefore, towards electric companies, which will shortly proceed to develop new projects to access the vehicle power supply market. Once again, enhanced investment, more employment and, ultimately, greater benefit.

Nevertheless, and following the line of the energy sector, we can identify several dilemmas to be faced by the draft bill, as a conflict between what is wanted and what it can be done is contemplated.

In the words of the Secretary of State for Ecological Transition, José Domínguez Abascal, the closure of the Spanish nuclear park is scheduled to come before 2030. These statements, in truth, do not pose any threat to the energy sector, since Spanish nuclear plants such as Almaraz or Trillo had foreseen their end of life in the years 2021 and 2028 respectively. The problem, however, lies next; in the closure of the entire coal park.

The electricity generation capacities that Spain holds will be greatly diminished by the disappearance of these two fields, of which the territory is highly dependent. By June 2020, only 5 of 14 plants will maintain their activity (As Pontes, Los barrios, Litoral, Aboño and Soto de Rivera), activity that is planned to be limited.

In response to this cessation, the Spanish government proposes the installation of 3000MW of renewable energy per year in the next decade, an approach that should be more ambitious taking into account the disappearance of sections as relevant as the ones highlighted above.

Considering the currently installed power and the time necessary for the installation of sustainable alternatives (The period of maturity of a wind farm is known to be between six to eight years, according to the Spanish Wind Business Association), if Spain pursues to reach 70% of renewable energies in its electric mix and reduce GHG emissions in 32% by 2030, it is advisable to bet further into alternatives like thermosolar, photovoltaic and tidal power generation. Otherwise, the energy sector could face several dependency scenarios.

These scenarios advocate to the use of natural gas as a transitional element. A plausible and functional approach, with the inconvenience of exposing the Spanish energy market to decisions of foreign suppliers (Algeria). This creates certain danger, increased by the conclusion of permits for exploration and exploitation of hydrocarbons and the inability to resort to fracking. It is for this reason that these drawbacks must be borne in mind despite the recently signed 10-year contract between Gas Natural Fenosa and Sonatrach (2018).

In this context, the use of a model focused on energy efficiency, characterised by large-scale investment in energetically efficient technologies, could considerably reduce the exposure of the energy sector to foreign markets. The inclusion of heat recovery technologies, thermal insulators, low consumption products or resource management techniques, represent, both industrially and domestically, a complement of remarkable importance if it is to transition to clean energies strategically.

The alternative position to natural gas, on the other hand, is a scenario of temporal conservation of nuclear power generation. A less popular approach due to the advance age of the available nuclear power plants. However, this alternative represents a lower dependence on hydrocarbons, as well as a drastic reduction of GHGs at a national level (the current Spanish energy sector accounts for 75% of the total greenhouse gas emissions). A suitable option to consolidate the environmental objectives foreseen by the ministry.

On the contrary, if it is preferred to maintain a scenario in which the use of natural gas is prioritised, achieving the goals in reducing emissions may become more complicated. This is due to the consequent industrial transformation of the territory, since the increase in vehicle production and sustainable technologies, as well as the remodelling of buildings and the adaptation of the transport sector to the new energy supply, will have an impact that could overshadow the environmental improvements during the transition period, leading to possible non-compliance with the set targets. Among the available measures to avoid this context, the use of CCS technologies (carbon capture and storage technologies) is found, although the lack of development in this area means that, for the time being, savings as a result of their application or their viability cannot be determined.

Despite all this, it can be considered appropriate to mention that the forecasts for industrial and economic growth in Spain are very favourable in the medium and long term. The implementation of this preliminary bill indicates a clear increase in employment and wealth, allowing development in technology and innovation.

Regarding the investment possibilities that arise for incoming years, those areas complementary to the energy, automotive and construction sectors are accentuated. In these areas, pipe manufacturing, wiring, energy storage, thermal insulation and other energy efficiency related companies aim to stand out. Simultaneously, audits and consultancies will find a great opportunity to maximise their benefits given the need for strategic plans, analytical studies and a diverse number of industrial projects that the market will demand.

Undoubtedly, a great moment for the engineering world.

 

Jon Arteta Ibinarriaga's picture

Thank Jon for the Post!

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Discussions

Jon Arteta Ibinarriaga's picture
Jon Arteta Ibinarriaga on Apr 29, 2019 2:17 pm GMT

https://www.linkedin.com/pulse/what-expect-from-spanish-green-revolution-jon-arteta-ibinarriaga/

Matt Chester's picture
Matt Chester on Apr 30, 2019 9:58 am GMT

Thanks for sharing what's going on in Spain, Jon.

"Several vetoes and impositions are seen to be especially important"

The pushback and the debate here seems rather important-- could you provide background context into what the two opposition sides are? Who are the ones who are pushing back? How much of the country do they represent? What do they prioritize?

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