The challenges of the energy transition: a paradigm shift
Jorge Sanz, María Fernández Pérez, Jordi Sevilla and John Müller
On 26 February 2019, the Rafael del Pino Foundation organised the dialogue "The challenges of the energy transition: a paradigm shift" with the participation of María Fernández Pérez, Jorge Sanz, Jordi Sevilla and John Müller (moderator).
María Fernández Pérez is the Vice-President of the CNMC (Comisión Nacional de los Mercados y Competencia). She holds a degree in Economics and Business Studies specialising in Economic Analysis and Quantitative Economics from the Complutense University of Madrid and is a member of the Corps of State Civil Administrators and State Commercial Diplomates. She has been head of service in the Subdirectorate General of Studies of the Court for the Defence of Competition and member advisor of the Technical Cabinet of the Secretary General of Economic Policy and International Economy of the Ministry of Economy and Finance. From 2010 to 2012 she was Deputy Director General for Competition and Economic Regulation in the Directorate General for Economic Policy of the Ministry of Economy and Finance. In January 2012 she was appointed Technical Secretary of the Delegate Commission for Economic Affairs of the Economic Office of the President of the Government, with the rank of Director General, a position she held until 2013, when she became Vice-President of the CNMC. Since 2013, she has held the position of Vice-President of the CNMC and President of the Regulatory Supervision Chamber, whose function is to supervise and control the correct functioning of the following markets: telecommunications, electricity, natural gas, postal, audiovisual communication, airport and railway sectors. She has been a member of the Board of the Body of European Regulators for Electronic Communications (BEREC), Chair of the European Mediterranean Regulators Group (EMERG), member of the European Regulators Group for Audiovisual Communication Services (ERGA) and member of the Latin American Forum of Telecommunications Regulators (REGULATEL).
Jordi Sevilla is Chairman of Red Eléctrica de España (REE). With a degree in Economics from the University of Valencia, Jordi Sevilla is a civil servant in the Senior Corps of Commercial Technicians and State Economists. He has been Minister of Public Administrations (2004-2007) and head of Economics of the Electoral Programme of the Socialist candidate for the Presidency of the Government in two election campaigns, 2015 and 2016. Deputy for the province of Castellón in the Congress of Deputies, spokesman for economics in the Socialist Group and chairman of the Joint Committee on Climate Change (2000-2009). Between 2016 and 2018 he was Vice-President of the Spanish consultancy firm Llorente y Cuenca, specialising in reputation management, communication and public affairs and, previously, between 2009 and 2015, Senior Counselor at PriceWaterhouseCoopers. Jordi Sevilla has also taught at the Escuela de Organización Industrial and the Instituto de Empresa. Author of several books on economics and politics, the latest of which is "Vetos, pinzas y errores: ¿Por qué no fue posible un gobierno del cambio?", he has published numerous articles in specialist journals and the daily press.
Jorge Sanz joined NERA's Madrid office in November 2014, as Associate Director in the Energy, Environment and Telecommunications Practice. After graduating in Economics from the Complutense University of Madrid (1988), Sanz obtained a Master in Economics and Finance from the Centre for Monetary and Financial Studies (Bank of Spain) in 1990 as well as a Master in Econometrics and Mathematical Economics from the London School of Economics and Political Science (1991). For more than twelve years (1992-2003), Jorge Sanz has been a civil servant in the Spanish Government, in the Ministry of Finance (SG of Economic Analysis and Programming), in the Economic Office of the President of the Government, in the Cabinet of the Minister of Industry, Tourism and Trade (as advisor on energy issues) and in the Cabinet of the Minister of Economy (as advisor on energy issues). In 2004, he was appointed Director General of Energy and Mining Policies of the Ministry of Industry, Energy and Tourism, a position he held until 2009, concurrently holding the position of Vice-President of the Spanish Institute for Energy Diversification and Saving (IDAE) and member of the Governing Board of the International Energy Agency in Paris. In 2009, Sanz was appointed Economic and Commercial Counsellor at the Spanish Embassy in Los Angeles, where he was responsible for all matters related to the interests of the Spanish energy sector in the United States. He held this position until joining NERA Economic Consulting in 2014. In 2017, he was appointed chairman of a group of experts who are to prepare a report that the Spanish government will use to define the strategy to face the transition to a decarbonised economy.
John Müller studied journalism at the Pontificia Universidad Católica de Chile. He worked for the Chilean weekly Hoy and was the Chilean correspondent for Diario 16. In the late 1980s he moved to Madrid, where he participated in the founding of La Gaceta de los Negocios and El Mundo. In the latter newspaper he has been, among other posts, head of International, deputy editor of Economy and deputy editor. For a brief period he edited El Universal de Caracas. He has also worked at El Español, a digital newspaper where he joined as deputy editor. In 2017 he covered the Chilean presidential election campaign for the newspaper El Mercurio, which culminated in the victory of Sebastián Piñera. He has written and coordinated several books, including Leones contra Dioses (2015) and the latest No, no te equivocques, Trump no es liberal (2017).
Summary:
On 26 February 2019, the dialogue "The challenges of the energy transition: a paradigm shift" took place at the Rafael del Pino Foundation, featuring María Fernández Pérez, vice-president of the National Commission for Markets and Competition; Jordi Sevilla, president of RED Eléctrica, and Jorge Sanz, associate director of Nera Economic Consulting. The event focused on the content of the draft bill of the Climate Change and Energy Transition Law approved by the government the previous Friday. María Fernández commented that one thing she liked about the draft bill is the integrated national energy and climate plan, because it specifies objectives and measures that we all have to carry out. Each of the measures it contains is a work programme in itself, which requires a lot of effort on the part of everyone, because it implies the modification of uses, customs and procedures. Jorge Sanz, for his part, was critical of the content of the draft bill. According to him, the objectives it establishes in all areas are more ambitious than the European average. In his opinion, this is a strategic error. Part of the decarbonisation will come from technological change and that will be free of charge. But the part that does not come from technological change will have to come at the expense of the Spanish people, who will have to make a great sacrifice in terms of loss of well-being for future generations. For this reason, the effort has to be balanced, not above the European average, because Spain's per capita income is below the European average, at 92% of the European average. Furthermore, if there is not a very powerful technological change, we will not be able to comply with the decarbonisation plan. Jordi Sevilla, in turn, stated that the fight against climate change and the objectives of decarbonisation are a national objective. In this respect, he praised the government's proposal because, for the first time, concrete proposals are being put forward, he said. Climate change is there and we are going to suffer the repercussions. So the cost of doing nothing is much higher than the cost of doing it. For María Fernández, it is feasible to achieve an investment of 100 billion in renewables, and 40 billion in networks, as envisaged in the Executive's plan. On the other hand, the goal of investing 60 billion in energy efficiency is more questionable as it implies changing consumer behaviour. Jorge Sanz was also critical on this point. One of the instruments to decarbonise is structural reforms to improve resource allocation, in particular fiscal reform. In the government's plan, however, these are conspicuous by their absence. Bans on, for example, the registration of polluting vehicles after 2040 or the use of coal-fired boilers have also disappeared. Everything is focused on technological change, the driving factor of the whole plan, which will allow private sector investment and mobilise public resources. But that will only be possible if technological change generates more economic resources, which makes the plan very vulnerable if that change does not happen as the government claims. At the end of all this, the question is whether the government is going to be able to mobilise 5,000 million euros a year with a public debt of 97% of GDP, with a budget deficit at the limit of what Brussels allows and with the social security problem that we are going to have in the next decade. Jordi Sevilla tried to play down these criticisms by pointing out that what we are talking about is an indicative plan that expresses a vision and a will. The option of being a little voluntarist has been chosen because the energy transition requires a very significant mobilisation of resources that needs to be coordinated in order to be effective and profitable, within a set timeframe. The question is whether the administration is able to give permits to do what needs to be done in a timely manner, i.e. to cut the deadlines in half. Jorge Sanz responded that the cheapest way to decarbonise is to bet on electric renewables, which are currently free. Non-electric renewables, on the other hand, are not competitive and are counterproductive in the fight against climate change. The other way to decarbonise is to save energy, but, on average, doing this is infinitely more expensive than opting for electricity. Maria Fernandez pointed out that the plan does include energy savings. But switching to gas heating has to do with consumer behaviour, as does the car. This will be done as and when it has to be done, but it will be more towards 2030. Regarding the powers assigned to the National Commission for Markets and Competition in the draft, María Fernández believes that this is an orthodox and positive solution because, when an independent regulator has the necessary powers, it brings about important changes in the country. Jorge Sanz also praised the granting of these powers to the CNMC because an independent regulator, if it deals with regulated remuneration with technical criteria, can maximise the interest of citizens. The government, on the other hand, cannot do so because it is always under political pressure, for example, the idea of progressive tariffs in the government-Podemos agreement. Jordi Sevilla supported giving powers to the CNMC. As he explained, the incentives are different for each party, which is why it is good that there are counterweights. Planning is also a key issue, because sometimes there is too much regulation. If we need to mobilise so much public and private effort in a limited space of time and with certain amounts of investment, we need to reach an agreement and do it at the same time. In this sense, Jordi Sevilla criticised the remuneration rate of 5.58% established in the draft bill, considering that it is not sufficient: they tell us what we have to do, at the price at which we have to do it, with investments that, in order to finance them, we have to go to international markets in search of resources at the interest rates in force in those markets at any given time. The CNMC, however, has made a very important move by trying to calculate the cost in terms of the cost of capital, work, etc. This change in methodology seems to him to be a good thing. Jorge Sanz agreed that the new methodology is much better than what we had. Now, at least, there is a methodology. But this method has margins of discretion and the feeling is that they have all been used so that the result is a low number. María Fernández defended the CNMC, in this sense, claiming that all the reports that had reached them gave a remuneration rate of 7%. Each one used a different method, but the final result of all of them was 7%. That, to say the least, is odd. Jordi Sevilla warned on this issue that two things were being mixed up: the cost of the electricity bill, which is 5%, and the remuneration of investments. Between now and 2030, he said, Red Eléctrica is going to have to invest 7,000 million euros that we are going to have to ask the market for. Therefore, we have to play this double game of the lowest possible cost, but with a remuneration that makes the necessary investment credible. He also warned that it will be more difficult to manage generation if the weight of wind and photovoltaic is greater, because their capacity depends on whether there is wind or if it is not cloudy. Demand, moreover, is changeable because it is self-consuming. All of this requires grids that are no longer so clearly unidirectional. What is needed now is more intelligence in the grids. María Fernández agreed with Jordi Sevilla when she pointed out that one of the needs is to adapt the transmission and distribution networks. Investments are needed in network intelligence and also to respond to the ups and downs of renewables. The problem, he said, is backup. In this regard, Jorge Sanz is surprised that not all nuclear power plants will be closed and only the 4,000 MW foreseen in the plan will be closed, given the uncertainties and regulatory changes. He also indicated that the plan maintains all the combined cycle plants, but does not say how they will maintain their availability to provide their energy, especially when their incentive is to close due to remuneration. Solar thermal power, for its part, is not competitive at present, but the plan is committed to it.
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