Impact of the phase out of French nuclear plants on the Spanish electricity market

Abstract

One of the key elements in the transition to low carbon economies is the phase-out of fossil-fuel based technologies. Nuclear power, despite not being a high emitting source, is one of the technologies at the heart of the debate, mainly due to security issues. However, nuclear electricity generation is still one of the baseload technologies in many countries and its progressive phase-out will thus have important economic implications. In particular, France, which is one of the countries with the highest nuclear participation worldwide (i.e. 70.6% of total generation), decided to lower nuclear production to 50% of total generation by 2035. Since France is a very well interconnected country in terms of energy, and it is also a net electricity exporter, the prices of all the neighbour electricity markets will also be affected by this political decision. Bianco and Scarpa (2018) analyzed the effect that the reduction of the import of electricity from France to Italy due to the phase-out of French nuclear plants had on the Italian electricity market when the interconnection size was 2,650MW. In this master thesis we propose to explore the effect that this phase-out would have on the Spanish electricity market, where the current electricity flow from one country to another is 2,800 MW. In fact, France already experienced a major supply crisis in January 2017 due to the stoppage of a large part of its nuclear plants. In that moment, France had to import Spanish electricity to cover their demand and Spanish electricity prices increased by a 28% compared to the same month of the previous year. Our results would have interesting policy implications for the integration of the single European electricity market, which is in the European 2030 agenda. The results show that the reduction of nuclear energy in France, increase the prices and decrease the quantities, but reducing a 100% of coal and increasing the interconnection capacity to the maximum and the production of renewable energies, the prices tends to decrease and quantities increase again. Hence, this paper recommends supporting the reduction of coal and an increase in interconnection capacity and renewable energies as a way to counteract the increase in the prices due to the phase-out of French nuclear energy.