Spain Power Report Q3 2013 - New Market Research Report

Spain's poor economic past and prospects are having a negative impact on the country's energy sector. Electricity consumption levels are forecast to drop for the third consecutive year in 2013, as high levels of unemployment and widespread austerity measures have slashed consumers' spending power - affecting both domestic and industrial electricity usage. As such, we are forecasting only muted growth for the power sector over the course of our 10-year forecast period. There is investment planned in transmission and distribution projects, spearheaded by Red Electrica de Espana, a move that we see as a means of securing supply from neighbouring Portugal and France, but other sectors will be less dynamic.

One area that is suffering from Spain's economic woes is renewable energy. Regulatory changes here have created market uncertainty, and without guaranteed returns on investment available, Spain will struggle to encourage utilities to develop large-scale renewable energy projects. Spain's leading firms, such as Iberdrola and Endesa, are focusing their efforts on international - emerging - markets. We do not expect them to up capital expenditure in Spain until the market returns to good health.

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Spain has a varied energy mix, tapping into thermal, nuclear, hydroelectric and renewable sources of power, thereby reducing the country's dependence on one source of electricity. Gas continues to account for the majority of energy provision, with imports from Algeria accounting for more than 25% of Spain's gas requirements. In the 2012-2022 period, Spain's overall power generation is expected to increase to 310.1 terawatt hours (TWh). Driving this growth is an annual 3.2% gain in gas-fired generation.

Following an estimated contraction in real GDP of 1.3% in 2012, BMI forecasts average annual growth of 1.3% between 2012 and 2022. The population is expected to rise from an estimated 46.8mn in 2012 to 49.0mn by 2022, and net power consumption looks set to increase from an estimated 254.0TWh in 2012 to 297.3TWh by end-2022. Over 2012-2022, the average annual growth rate for electricity demand is forecast to be 1.6%. The country's theoretical net export capability by 2017 is forecast to be 8.2TWh, which we see falling over the second half of the forecast period, to see Spain having the potential to export 2.7TWh by 2022.

The key trends and developments in the Spanish electricity market are:

* Work on the French-Spanish electricity connection cable advanced over the quarter: in April 2013, Red Electrica de Espana (REE) announced that work had been completed on the 8.5km tunnel connecting Jonquera in Spain with Montesquieu-des-Alberes in France. REE expects that work on the entire 65km transmission line will be finished by January 2014.

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