Meeting the electricity decarbonisation challenges – policy approaches in the UK and Spain

All parts of the energy sector are being affected by decarbonisation but none more so than electricity, where the most far-reaching policy interventions have taken place.  That raises challenges of a general nature (e.g. how to reconcile liberalisation and decarbonisation) and in designing the immediate policy measures themselves (e.g. support for renewables). But perhaps the trickiest issues arise in relation to the indirect and sometimes unintended consequences – for instance, the way in which the penetration of inflexible zero (or near-zero) marginal cost plants changes the dynamics of electricity and makes investment in conventional plants riskier, or in the new challenges for regulation  (and indeed the very definition of what constitutes a ‘level playing field’) created by the exponential growth in the number of market actors – many systems now have literally millions rather than simply tens or hundreds of sources supplying electricity or other services.  New policy approaches are needed to address these new issues.  Germany is often looked at as a model in this area but in many ways it is a special case – the changes there have been driven to a large extent by the exit from nuclear and it is well placed in the centre of Europe, with multiple interconnections, able in effect to export many of the problems.

 This research focuses instead on the cases of Spain and the UK.  Both countries have limited interconnections so have to solve their own problems within their territories.  Furthermore, in many ways the two countries face the problems in particularly acute form.  Spain initially made the mistake of trying to protect its consumers from the consequences of very ambitious policies to expand renewable power, but ended up creating a huge (€30 bn) ‘tariff deficit’ problem – it has had to innovate rapidly in the attempt to get back on track.  The UK was probably more committed to liberalisation than most other countries but subjected itself to much tighter legal targets for decarbonisation via the Climate Change Act – it is also having to develop policy very quickly in the attempt to meet both goals at the same time.  The study will look at the different measures the two countries have introduced to address this new agenda, and at their advantages and drawbacks; it will consider whether are lessons for the many countries, in Europe and more widely, which are facing the same decarbonisation challenges.

By: Malcolm Keay , David Robinson

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