Three key elements for an electric network that works

Three key elements for an electric network that works

Published on October 13, 2022 / Leer en español

Director, Madrid Policy Bureau

The most recent massive outage caused by Hurricane Fiona in Puerto Rico, the disenchantment with LUMA’s performance, and the general frustration with the reconstruction and transformation process of the island’s electric infrastructure led me to ask two Spanish experts about the keys to having a functional electric system. In this Apuntes de Madrid I spell out the learnings I derived from separate conversations with Diego Rodríguez Rodríguez, economist, professor at Universidad Complutense de Madrid and part of the Spanish think tank FEDEA; and with Ricardo Guerrero Lemus, applied physicist, professor, and part of the research group on renewable energies at Universidad de la Laguna in Tenerife, Canary Islands. Both hail from the Canary Islands Archipelago and thus understand the workings of isolated, antiquated and vulnerable island systems such as Puerto Rico’s.

The lessons point in three directions: normative (regulation, metrics), institutional (the effectiveness of government supervision, the collaboration between actors, innovation, research), and technical (digitalization, capacity of the network).

Electric outage in the aftermath of Hurricane Fiona. Image: El País

1. Spanish regulation establishes the guarantee of electric supply as a priority; non-compliance has concrete consequences for companies

The creation of an electricity market in 1977  after the integration of Spain into the European Union’s energy sector transformed the country’s electric sector from one in which one company, UNESA, coordinated the totality of the electric system and rates were fixed by the State, to a liberalized one in which private actors played within the framework of market competition. The regulatory framework associated with this change incorporated the notion of “supply guarantee”. This notion establishes the responsibility of these new actors to supply electric demand at all times and gives rise to a multiplicity of regulations that encompass from the generation of electricity in insular territories and the faculties of the operator of the electric grid during emergencies, to the ability of public administrations to impose sanctions against companies in cases of “energy zeros” (electric outages).

There are few “zeros” in Spain – the availability index in the peninsular network was of 98.5% in 2021 and the average time of outages was less than 25 seconds. Insular systems are more fragile: in 2021 the Canary Islands Archipelago had 4 electric outages of an average of 2.33 minutes each (Red Eléctrica, The Spanish Electricity Report). Outages, when they do happen, are severely sanctioned and include not only million-euro fines to companies, but compensation to consumers. During the last few years, the island of Tenerife, for example, has issued over € 64 million in sanctions for major “energy zeros”:

  • September 2019 – an electric interruption left the 950-thousand inhabitants of the island in the dark for 9 hours. Endesa, the company in charge of generation, and Red Eléctrica de España, the grid’s operator , were imposed fines of € 10 million and € 30 million Residents of urban areas were entitled to a € 21 credit for the electricity they did not receive (in Spain one pays not only for electricity consumed but for the maximum capacity the household can consume at any given moment). Consumers were urged to submit compensation claims for lost foodstuff or damaged appliances.
  • June 2020 – this time, Red Eléctrica was fined € 8 million for a 54 minute “zero” that affected almost 150-thousand consumers.
  • July 2020 – a “zero” of more than 16 hours brough a € 6 million fine to producer Unelco and another one of € 10 million to E-distribución Red, distribution company.

In Puerto Rico no fines have been imposed for outages (despite the fact that the law allows them): the April 2022 outage, for example, is still under evaluation by the Energy Bureau/Negociado de Energía (NEPR) as we write in October.

Click on the following video (in Spanish) to listen to Ricardo Guerrero Lemus about the guarantee of electric supply

2. The company in charge of the electric grid is actively supervised by the State and operates under clear performance parameters

In Spain, the operator of the electric network is a publicly-traded private company, Red Eléctrica de España (REE). Nonetheless, the Spanish state maintains a 20% participation through the Industrial Participation State Society/Sociedad Estatal de Participaciones Industriales (SEPI), a public corporation with investments in key sectors (naval construction, rural development, infrastructures, among others).  Supervision over REE is made by the Ministry of Ecologic Transition and Demographic Challenge/Ministerio de Transición Ecológica y Reto Demográfico, which is in charge of the energy sector, and the National Commission for Markets and Competition/Comisión Nacional de Mercados y Competencia (CNMC); supervision by both agencies is particularly active. In Puerto Rico, public oversight over the company in charge of the network (LUMA) falls on the Authority for Public Private Alliances/Autoridad para las Alianzas Público Privadas (AAPP) and the Energy Bureau/ Negociado de Energía de Puerto Rico (NEPR).  According to press reports, public oversight over LUMA has suffered from lack of coordination between these agencies, laxity, and, in some instances, lack of expertise.

Red Eléctrica’s remuneration system in Spain has been designed to incentivize good performance. Only operational costs related to “an efficient and well-managed company” are considered. Clear metrics have been incorporated into the system, including incentives related to compliance and penalties for failures in service.  In Puerto Rico, CNE has alerted about flaws in the contract subscribed between PREPA and LUMA and about the lack of precision of the performance parameters included in the contract.  The process to determine performance parameters for LUMA did not start in the NEPR until December 2020 – six months after the contract was signed – and even today, more than two years later, the process continues and is the subject of multiple motions and counter-motions. The performance report prepared in May 2022 by the NEPR (NEPR-MI-2019-007/June 2021-May 2022, 12-Month Metrics Summary) lacks data for almost 90 of the 565 parameters, both for generation and distribution, as well as in the area of financial performance. Specifically, in the area of transmission and distribution (in charge of LUMA), the NEPR found “compliance” in only 4 of the 14 parameters, “non-compliance” in 6, and lacked data for 4.

As a comparison:

  • Red Eléctrica manages 27,300 miles of electric circuits in Spain; LUMA manages 2,500 miles of transmission and distribution lines in Puerto Rico.
  • In Spain, Red Eléctrica has one operating group in charge of electricity transport and another one in charge of construction and maintenance of the transmission and distribution network; in Puerto Rico both functions have been delegated to LUMA.
  • During 2020-2022 Red Eléctrica de España’s yearly compensation for electricity transport was fixed at between € 71.8 y  € 74.6 million; that is, incentives could represent some € 2.8 million to the company. LUMA’s base compensation for this coming (first) year of the contract is set at $ 70 million in 2020 dollars adjusted for inflation; incentives can be of up to an additional $ 13 million. LUMA currently operates Puerto Rico’s grid under a Supplementary Agreement that allows it to receive a base compensation of  $115 million in 2020 dollars adjusted to inflation. The first adjustment for inflation has already resulted in an increase of  $7 million over the base compensation.

Click on the following video (in Spanish) to listen to Rodríguez Rodríguez about state supervision over the grid’s operator

3. Spain’s electric grid is digitalized and is managed transparently in order to facilitate the integration of renewables

The penetration of renewable sources for the generation of electricity in Spain has reached important levels: it represents 57% of installed capacity and 48% of produced electricity.  It thus exceeds the 39% of renewable electricity generated in the totality of the European market. In contrast, in the USA electricity generated from renewable sources stands at 24%; in Puerto Rico, renewable generation in large-scale facilities under contract by PREPA is of 2%.

These achievements in Spain have been possible, among other things, thanks to the creation of a pioneer system for managing the integration of renewable sources that has set the standard for Europe. Through the digitalization of the electric grid (a smart grid), Spain has an REE-operated Control Center for the Integration of Renewables that every 12 seconds obtains from renewable generation sources, information on their production, voltage and connection quality. Working in tandem with a state-of-the-art energy storage system, this digital control center brings stability to the generation of energy from renewable sources, which by nature fluctuates with climatic conditions. Moreover, information on connection nodules available for new connections to the grid is open-sourced, something that facilitates planning and the entry of new renewable generation suppliers (see for example, the list of the 920 nodules that were available on October 3 throughout the country).  Planning is a live, dynamic and continuous process: it integrates Autonomous Communities and private actors from the sector with proposals for expansion and enhancement of the grid (in 2019, 1,335 proposals were received, most of them related to renewables.

At the consumer level, the use of “smart” (digitized) electric meters for “net metering”, ie, the technical aspect, has run parallel to changes in regulation. These facilitate both the production of energy at the point of consumption, as well as the interconnection between consumers and prosumers (consumers that produce their own energy). The need for permitting for self-consumption facilities was eliminated, as well as the so-called “sun-tax”, which required prosumers to pay for their connection to the electric grid. Electric toll charges for use of low-voltage lines were also eliminated. Consumers continue to contribute to the electric system through a fixed potency charge that is included in their bills and is calculated by the National Commission for Markets and Competition based on the cost of maintaining and modernizing the distribution and transmission network. The juridical figure of an “energy community” was also created.  “Energy communities” can be of two types: a sort of cooperative in which partners put up capital to install an energy facility, or that of an association between a consumer who buys the electricity from a prosumer neighbor, all facilitated by the digitalization of the electric grid.

Click on the following video (in Spanish) to listen to Ricardo Guerrero Lemus on energy communities

This normative and technical push has coincided with massive European Union funding, a key element in growing self-consumption into a large massive scale. Grants are allowing consumers to amortize their investment in photovoltaic panels in three to five years, instead of one or two decades. The European Union has at least 12 funds available to promote the evolution of the energy sector. Spain has assigned  € 660 millions of these funds to the Autonomous Communities in order to facilitate self-consumption, which still has a relatively low level of penetration in the peninsula (the Spanish Photovoltaic Union/Unión Española Fotovoltaica says that there are only 150,000 self-consumption facilities in the country versus 2 million in Germany; in Puerto Rico self-consumption reached 18% in January 2022). It is expected that these regulatory changes and increased public funding will give impulse to the sector, something that is already occurring in the Canary Islands Archipelago.

The Canary Islands, like Puerto Rico, is still dependent on petroleum for most of its electric generation. Located near the African coast, its distance from the Iberian peninsula (more than 1,200 miles) makes its electric system an isolated one (like Puerto Rico’s). During the first five months of 2022, the Canary Islands Archipelago tripled its installed capacity for electric self-consumption (mostly solar), and although still small in numbers, the sector is expected to grow exponentially.  Local public administrations and universities have started betting strongly on renewable sources and the creation of prosumers. The islands have 4,800 yearly hours of solar light and 200 square km of idle surfaces (rooftops, parking spaces): some venture that self-generation could become a key anchor for the islands’ electric system.  The University of La Laguna, in Tenerife, for example, is actively undertaking research on renewable sources for energy and on the development of intelligent electric grids in island contexts.   It has also started an outreach effort with the island’s Town Hall to guide the population on the formation of energy communities and on the use of rooftops for the production of photovoltaic energy.