1. March 2011 Opening session: the Spanish TSO experience on renewable integration Dirección de Operación

2. Contents  Spanish TSO presentation  Overview of the Spanish electric sector  Current regulatory framework of Spanish renewable units  Challenges

3. RED ELÉCTRICA DE ESPAÑA 3 Who is Red Eléctrica? Red Eléctrica de España (REE) is the Spanish transmission system operator (TSO) REE is operating the mainland system and the island systems REE was the first company in the world dedicated exclusively to power transmission and the operation of electrical systems.

4. RED ELÉCTRICA DE ESPAÑA q Operates the system to guarantee the power supply.  Since 2006 also in the extra-peninsular systems q Designs, builds and maintains the transmission network.  Since 2007 as exclusive transmission company Red Eléctrica de España (REE): Mission and principles. SEPI: Spanish Stated Owned Holding Company SEPI 20 % SHARE CAPITAL (Aprox.): 4 Transmission Grid Main magnitudes (SPPS) Closure 2010 Lines 400 kV [km ct]18,576  220 kV [km ct] 17,221 Subst. Transformers 400/X kV [MVA]69,059  220 & 400 kV [nº bays] > 3,500  It has proved fundamental for the fast and secure implementation of electricity market and integration of RES

5. RED ELÉCTRICA DE ESPAÑA Spanish transmission system q REE: Spanish Transmission System Operator. q 34000 km of lines and 60000 MW of transforming capacity. q Spanish peak demands 45 GW and off-peak demands of 19-25 GW. q Planned reinforcements 2009-2016, partly due to RES integration: Highlighted lines correspond to planned lines from 2008-2016.

6. RED ELÉCTRICA DE ESPAÑA Spanish inteconnection capacity  Limited interconnection capacity with France, security link with the European Interconnected system. In practice almost an “electrical island”. PO  ES = 1,5% FR  ES =1,5% Potencia Inst. ESPAÑA = 94 604 MW MA  ES = 0,6% UE 10% Interconnection capacity compared to installed capacity

7. RED ELÉCTRICA DE ESPAÑA 7 Spanish energy context The 20/20/20 European Strategy is the key driver of the Spanish energy model change 20 / 20 / 20 Strategy  The development of renewable energy sources and the reduction in consumption imply a reduction in GHG emissions.  Renewable energy integration into the electric grid produces an improvement in the system efficiency. 20% reduction in primary energy consumption 20% of final energy coming from renewables 20% reduction in GHG emissions

8. RED ELÉCTRICA DE ESPAÑA Installed capacity January 2011 TechnologyMW% Hydro-power 16 657 17.5 Nuclear 7.455 7.8 Coal 10.789 11.3 Fuel-Gas 1 849 1.9 Combined cycles 24.641 25.9 Total (ordinary regime) 61.39164.3 Wind power generation 19976 20.9 Solar PV 3.634 3.8 Solar CSP 630 0.7 Biomass 684 0.7 Special regime hydro 1 965 2.1 Cogeneration 5 946 6.2 Waste treatment 1 204 1.3 Total (special regime) 33.791 35.7 Total95.430

9. RED ELÉCTRICA DE ESPAÑA 260.230 GWh = 189.071 Net Ordinary Regime + 90.513 Net Special Regime -4.412 Hydro-pump storage -8.338 International exchanges Demand supply 2010 Special Regulation Regime Renewable: Minihydro Biomass Wind Industrial waste Urban waste Solar Non Renewable: Cogeneration Coal Fuel - Gas oil Refinery gas Natural gas

10. RED ELÉCTRICA DE ESPAÑA Present wind power capacity and evolution q Renewable Energies’ Plan for Spain (August 2005): ~20,000 MW by the year 2010. q Official Network Planning for 2016 contemplates ~29,000 MW. q Renewable Energies Plan for Spain 2010-2020 ~38,000 MW. 10 Installed Wind Capacity January 2011 kW/km 2

11. RED ELÉCTRICA DE ESPAÑA 11 - Development of Spain-France Interconnection with a new 2 x 1000 MW DC underground line -1st step for objective of 4.000 MW of commercial capacity -Necessary for building the IEM -Fundamental for RES integration in Spain -(& Portugal) Development of the Spain-France Interconnection: A priority 500-600 1700-2800 1200-1400 2600-3000 Spain –and Portugal- form a peninsula, also electrically, with weak electrical interconnections with the rest of European Union.

12. RED ELÉCTRICA DE ESPAÑA q Rights m To deliver energy to the grid through the distribution company or to sell it in the market receiving regulated retribution (regulated tariff or premium) m Priority of access to the grids. m To deliver all the produced energy q Duties m To deliver energy in suitable conditions which doesn’t cause disruptions in the system. m To be adhered to a generation control center. (Power Plants > 10 MW). This control center will be the intermediary and speaker with the System Operator m To carry out the rule about avoiding the problem of tension holes 1. It’s a condition to receive the regulated tariff or premium. Current regulation: RD 661/2007. Rights and Duties (1) Operation Procedure 12.3. This is a problem which occurred with the old wind machines.

13. RED ELÉCTRICA DE ESPAÑA q Possibilities m To deliver the energy to transmission or distribution network with a regulated tariff (c€kWh) m To sell the energy in the market: Retribution= Market price + premium q Regulated tariff m Fixed amount of money for all periods for each type of energy m Hydroelectric, biomass, biogas: they could have hourly discrimination. q Market : Retribution= Reference Price + Premium m Cup and Floor are established for the total amount of price+ premium m Premium is variable: Total amount to receive > Cup and > Floor. q Power Plants >50MW must go the market Economic Regime in current regulation: RD 661/2007

14. RED ELÉCTRICA DE ESPAÑA Market integration of wind energy q Possibility of accessing the daily wholesale market and updating the schedules in the intra-day markets according to new production forecasts. q As for any type of generation, agents are penalized for their deviations and pay for the balancing energy needed to counteract their deviation. q Reserve bands are calculated by the TSO and paid by the final consumers. 14

15. RED ELÉCTRICA DE ESPAÑA q For renewable energy there is a retribution table for the first 25 year and other for after. After 25 years q For photovoltaic it isn’t possible to go to the market, there is only tariffs: RD 661/2007. Economic Regime

16. RED ELÉCTRICA DE ESPAÑA Recently, National regulation oriented to control of generation to be connected per year, securing economic and technical sustainability q RD1578/2008 for Solar FV, extending RD661 objectives with quotas of 500-400 MW per year with progressive reduction of tariffs emphasis on roof plants over floor plants q RDL6/2009 for the rest of SRG, establishing quotas per year for plants to be commissioned (upto ≈ 2,5 GW Solar Thermal in 2013; upto ≈ 23 GW WP in 2012), demonstrating some pre-requisites: m Access and connection authorization issued by REE or distribution company m Administrative authorization for power plants > 100 kW m License for Commissioning m Deposit of a bank guarantee (for wind: 20€/kW; for Solar Thermal: 100€/kW) m Financial resources at least for 50% of the total m Purchase -or contract- at least for 50% of the equipment m Authorisation for gas access and water supply (when applicable) Recent modifications of regulation for SRG

17. RED ELÉCTRICA DE ESPAÑA q Installed power: It will be updated every year m The Register of Pre-establishment of retribution is created to enter all of the requested power plants. m A quota of installed power is established for the first year and it will be updated. First year: Facades: 267 MW Floor : 133 MW q Retribution: Photovoltaic updatings. RD 1578/2008

18. RED ELÉCTRICA DE ESPAÑA R.D 2366/1994, establishes a new regulation for special regime R.D. 2818/1998, adequates special regime regulation to new Act 54/97, of electric power system R.D. 841/2002, regulates and incentives special regime participation in generation market 1994 2002 2004 1998 1980 Development of Special Regime Regulation 2007 2008 Act 82/1980, determines, for the first time, distributors obligation of purchasing renewable energy at a regulated price for R.D. 436/2004, merges all the existing regulationa and defines a new economical framework for special regimen R.D. 661/2007, updates economical and legal framework for special regime generation, including installed power goals R.D.1578/2008, modifies, reducing incentives and increasing requirementts, fotovoltaic energy regulation R.D.6/2009, creates a special registration mechanism in order to reach the objectives of installed power in an efficient way 2009

19. RED ELÉCTRICA DE ESPAÑA Payment of Technical Services Units which deviate from their programs Deficits and surpluses are paid by final demand proportionally to metered energy (excepting pumping units and exports) UPWARDUNBALANCES (less consumption, more generation) Receive DMP Receive minimum of: DMP Average price of DOWNWARD energy used (SR + TR + DM) DOWNWARDUMBALANCES (more consumption, less generation) Pay DMP Pay Maximum of: DMP Average price of UPWARD energy used (SR + TR + DM) IN FAVOUR OF THE SYSTEM IN OPOSSITION TO THE SYSTEM TECHNICAL CONSTRAINTS SECONDARY RESERVE Final demand depending on the metered energy (excepting pumping units and exports) SECONDARY ENERGY TERTIARY ENERGY DEVIATION MANAGEMENT

20. RED ELÉCTRICA DE ESPAÑA Influence of solar photovoltaic in system operation  2% of the total energy demand in 2009.  Present installed capacity: 3 392 MW.  Reduced observability by the SO. Must be solved.  Behavior in summer in accordance to demand requirements.  In winter, peak demand is in the evening. No contribution.  Connection to Transmission/Distribution: 2/98% YEAR SOLAR PV PRODUCTION (GWh) 200540 2006103 2007466 20082 477 2009 5 347 Source CNE

21. RED ELÉCTRICA DE ESPAÑA Integration of solar thermoelectric in system operation  Present installed capacity 481 MW.  In the short term: increase of  500 MW per year.  Two technologies: parabolic trough and tower.  Connection to Transmission/Distribution: 63/37%  Year 2007: first commercial solar thermoelectric plant installed (PS-10)  Installed capacity: 11 MW (as a part of the Solucar project with expected 300 MW en 2013).  Generated energy in 2009 : 125 GWh.  Planning 2010-2012: 500 MW per year of new installed capacity.  Positive correlation with demand in summer.  In winter molten salt storage and hybridation with natural gas allow production during the daily load peaks becoming mostly manageable generation. Planta PS-10 21

22. RED ELÉCTRICA DE ESPAÑA Legal framework (I) q Definition of Special Regime m Law 54/1997 Article 27: Special regime of electricity generation Electricity generation activities shall be regarded as generation under the special regime system in the following cases whenever they are carried out from installations whose installed power is no greater than 50 MW:  Cogeneration or other forms of electricity generation associated with non-electricity operations, provided they involve high efficiency output  Whenever non-consumable renewable energies, biomass or biofuels of any type are used as primary energy, provided their holder does not engage in generation activities under the ordinary system  Whenever non-renewable waste is used as primary energy 22

23. RED ELÉCTRICA DE ESPAÑA Legal framework (II) q Royal Decree 661/2007 m Legal and economic framework for Special Regime production which includes: Type of installations that can be considered as Special Regime Procedure to include plants in the Special Regime Register Rights and obligations of the Special Regime producers Priority of dispatch over conventional generation Market integration. Two options:  Regulated rate: Constant feed-in tariff per MWh produced  Selling the electricity on the electricity production market: price established in the day-ahead and intraday organised market (OMEL) or the price that has been freely negotiated by the owner or the installation representative (bilateral contract), complemented by a premium dependent on the technology of the installation. Economic framework Requirements to participate in the system adjustment services Cost of deviations 23

24. RED ELÉCTRICA DE ESPAÑA Art 24.1.a: Sell trough distributor or transport grid q Feed-in tariff q For some technologies (CHP, mini- hydro, biomass…) depends on the periods they generate. q Reactive energy supplement m If P>=10MW units may receive instructions from the OS q High efficiency supplement (for CHP) q Supplement for voltage dip ride through capabilities (maximum period 5 years, until 31/12/2013) For wind only. Art 24.1.b: Sell in the electricity energy production market q Price of the organized market q Premium: m For renewable energies: With upper and lower limits for the sum of the reference market price an the reference premium m For non renewables: Fixed premium q Reactive energy supplement m If P>=10MW may receive instructions from the operator of the system. q High efficiency supplement (for CHP) q Supplement for voltage dip ride through capabilities (maximum period 5 years, until 31/12/2013) For wind only. Economic Framework (I) 24

25. RED ELÉCTRICA DE ESPAÑA Art 24.1.a: Sell through distributor or transport grid q Directly or through a representative or trader q Cost of deviations m If have the duty to have hourly measuring equipment: As established in PO 14.4 m If not: exempt q Participation in the system adjustment services Technical constraint management” m Mandatory ones: Such as “Technical constraint management” Art 24.1.b: Sell in the electricity energy production market q Directly or through a representative or trader q Cost of deviations m As established in PO 14.4 q Participation in the system adjustment services Technical constraint management” m Mandatory ones: Such as “Technical constraint management” m Manageable installations may participate in optional services (subject to prior authorization by the administration and technical authorization by the SO) Economic framework (II) 25

26. RED ELÉCTRICA DE ESPAÑA Challenges The current high penetration of RES must be significantly increased due to ambitious national objectives (2020: 20% of E final  ≈ 40% E electric ) Market/Regulatory changes TSO management of new RES connections (queues mangement) and tests for more dispatchable resources Technical Requirements (voltage dips, freq. regulation, voltage control, …)  Technical challenges motivated by particular features of new generation: Location far from load and sometimes grid Vulnerability to incidents(voltage dips) Primary energy: Lack of firmness and control * Power installed Dec 2010 ** NAP for 2020 submitted to EC in June10 (Under review) 38.000 MW** 8.367 MW** 5.079 MW** 19.975 MW*> 3.500 MW* 630 MW*