Cross-Border Energy Exchange and Renewable Premiums: The Case of the Iberian System

In 2002, the European Union set a target of 10% electricity interconnection capacity for 2020: a target that has been further extended to 15% by 2030. Cross-border interconnection of regional/national electricity systems will allow the EU to enhance its security of supply and to integrate more renewables into energy markets. Although the EU has a common renewable directive, every Member State has its own renewable support policy. For the case of Spain, consumers pay the renewable premium in their electricity bills; however, consumers would not be overburdened if premiums were counter-balanced with the energy-cost reduction due to the merit-order effect of renewables. When two markets are interconnected, the energy exchange through the interconnection yields certain expected rent transfers due to the market rules. However, this exchange is also accompanied by other unforeseen rent transfers related to the regional/national policies on renewables. To the authors’ knowledge, the identification and quantification of these indirect rent transfers has not been previously addressed. This paper analyses and quantifies how the premiums on regional/national renewables are distributed between neighbouring countries through cross-border exchanges. The analysis focuses on the Iberian/Spanish system and its neighbours, although the methodology could be extended to other systems. To this end, data on the market and premiums has been considered, as well as the exchanges between France, Spain, Portugal, and Morocco, for the years 2015–2017. The main finding of this work is that the Spanish system, due to the lack of a coordinated/harmonized renewable premium policy, has been “importing” about 40 M€/year of renewable premium from France and 17 M€/year from Portugal while “exporting” about 66 M€/year towards the Moroccan systems.