Spanish and Portuguese transmission system operators Red Eléctrica de España and Rede Eléctrica Nacional, respectively, have been considering increasing the number of cross-border interconnections for several years. The creation of a single Iberian electricity market (MIBEL) in 2005 has made doing so even more challenging. More teamwork is required to build, in a coordinated way, new interconnections and the correlated internal grid reinforcements in each country. Hence, Red Eléctrica de España (REE) and Rede Eléctrica Nacional (REN) have been working together to increase the size of power exchanges between Spain and Portugal, which was a prerequisite for MIBEL to begin operation.

The Iberian Electricity Market

MIBEL started operating on July 1, 2006, with the objective to provide access to a common electricity market for all agents (utilities and consumers) operating within the Iberian Peninsula. The market for energy is managed by the operator for the Iberian market, which started with two bodies: OMEL, situated in Madrid, Spain, which is in charge of the day-to-day operations to deal with the daily and intra-daily spot markets, and OMIP, located in Lisbon, Portugal, which is responsible for short- and medium-term future contracts for physical trading of standardized packages of power quantities for a maximum of one year. Put another way, MIBEL is organized into two markets: the futures market, which includes transactions of energy blocks to be delivered at a future date, settled both by physical delivery and by differentials; and the daily market, which encompasses transactions for blocks of energy and delivery the day after trading, settled necessarily by physical delivery.

The non-organized markets are comprised of bilateral contracts among the market participants, and these energy transactions may be settled through physical delivery or price differences.

Management of the interconnection has been based on market splitting. An explicit auction mechanism also was implemented at the border that includes the allocation of physical transmission rights for different programming periods of more than one day. Explicit auctions generally take place for annual, quarterly and monthly programming periods. In order to maximize the use of exchange capacity, in accordance with the coordinated explicit auction system, a “use-it-or-get-paid-for-it” rule applies. The implementation of the market splitting mechanism began in July 2007.

Use of Existing Interconnectors

The exchange capacity between Spain and Portugal from 2002 to 2009, considering the transmission system capacities with full availability (no line outages for maintenance or uprating), has increased from between 550 MW and 1050 MW to over 1500 MW. With a new 400-kV transmission line currently being constructed over the River Duero, scheduled to be in operation in 2010, the exchange capacity will reach 2000 MW. These values do not consider the limitations that can occur when there are restrictions on the generation capacity available for export in each country (with low hydro or low wind farm energy production).

The use of the available system capacity for energy exchanges increased dramatically between 2001 (2083 MWh) and 2006 (10,710 GWh). For example, in 2006, the interconnection capacity was used at full capacity 30% of the year. Additionally, during the period of July 1, 2007, to June 30, 2008, the interconnection capacity between Spain and Portugal was congested 71% of the time. Therefore, the long-term energy transaction forecasts for MIBEL will require a transfer capability of some 3000 MW.

The strong trend of commercial load flows from Spain to Portugal is derived, in part, from some delay in the Portuguese program for construction of new CCGT power plants, which were schedule to be commissioned from 2007 on, and only start the operation in mid-2009. This program construction, conducted by private companies, will lead to a more efficient set of Portuguese power plants to operate on market and the progressive decommissioning of old ones.

In 2006, the two governments established a common objective of providing a minimum exchange capacity of around 3000 MW. To fulfill this objective, an important investment programme is needed to reinforce the Spain-Portugal interconnection and the internal system structures. In addition to creating new possibilities for increasing the energy exchanges, new interconnections would provide some key benefits:

• Improve system reliability, mainly in the border areas

• Obtain synergies from the complementary generation technologies of renewable resources (wind and solar)

• Realize financial benefits from the diversity of conditions between countries (hydro, climate, peak load hours and working day differences)

• Obtain financial and environmental benefits arising from reduced transmission losses, reduced reserve generating capacity, improved system stability and reduced investment to provide generation capacity to supply peak demands.