sustainability

Article Special Regulation of Isolated Power Systems: The Canary Islands, Spain

Manuel Uche-Soria ID and Carlos Rodríguez-Monroy * ID

Department of Industrial Organization, Business Administration and Statistics, Technical University of Madrid, c/José Gutiérrez Abascal, 2, 28006 Madrid, Spain; [email protected] * Correspondence: [email protected]; Tel.: +34-91-3364265; Fax: +34-91-3363005



Received: 6 June 2018; Accepted: 20 July 2018; Published: 23 July 2018


Abstract: As non-mainland territories, the Canary Islands represent isolated electricity systems with their own peculiarities, derived mainly from their location. They are therefore subject to a special regulatory framework governing their electricity supply activities. These systems are less stable, in terms of both electrical energy generation and its transport infrastructures, because their site limitations require production to rely on a small number of plants, multiplying the problems that arise from potential grid or generator failures. This means that power generation costs in isolated groups of islands have been intrinsically higher than those on the mainland, above all in terms of fuel, given their greater dependence on fossil fuels. These costs also have a different structure, wherein variable costs prevail over fixed costs. The entry into force of Royal Decree 738/2015 defines a new method to determine the price of demand, generation, and additional costs. In addition, it creates a new virtual market for each isolated system (or subsystem), which takes into account the prices of the mainland, moving year, and generation costs. This implies a reduction in the volatility of the electricity market in these territories (lower risk) because part of the purchase price is already known. In this regard, the Canary Islands’ subsystem that has experienced the greatest increase in generation costs is the island El Hierro, since, in systems where there is a wider diversification in the generation methods, there is also a greater variation in monthly prices—that is, greater uncertainty. The aim of this study is to analyze the operation of the Canary Islands’ electricity market and the configuration of its dispatch pool. The wind-pumped hydropower station on El Hierro is described as a specific case study to illustrate the impact of the new regulatory framework.

Keywords: isolated power system; renewable energy; market power; generation costs; self-consumption; Canary Islands; smart grids

1. Introduction

1.1. A General Idea about Isolated Environments The literature on electricity generation systems in isolated regions is abundant, reflecting the importance of appropriately specifying how the general national policies and regulations are applied to these much smaller systems. Guerrero-Lemus et al. [1] analyzed the current electric power system and energy production in Tenerife, especially photovoltaic (PV) and wind energy. They further investigated the consequences of this new legislation and the planning initially approved by the government of the Canary Islands to substantially increase the share of both technologies by 2020. Likewise, Marrero and Ramos-Real [2] evaluated the situation of the electricity generation mix in the Canary Islands and compared it with the Canary Islands Energy Plan, highlighting the inefficiency of the current generation mix of the islands and studying measures to improve it. Another interesting example of renewable energy technology in isolated environments, applied this time to the island of Cozumel in Mexico,

Sustainability 2018, 10, 2572; doi:10.3390/su10072572 www.mdpi.com/journal/sustainability Sustainability 2018, 10, 2572 2 of 20 was offered by Mendoza-Vizcaino et al. [3]. This study shows that, by 2050, a feasible integration of a wind/PV-based system can be achieved on that island. Fokaides and Kulili [4] presented a study on the network parity in island systems as it applies to Cyprus, with special emphasis on the PV case. Kuang et al. [5] reflected on the use of renewable energies in isolated territories, especially in terms of distributed generation and smart grid technologies for their future application in isolated environments. Finally, Díaz et al. [6] described the impact of electric vehicles as distributed energy storage, using the particular case of Tenerife Island, providing encouraging results. In Spain, Article 10 of Law 24/2013 for the electricity sector [7] recognizes the need for special regulations for “Insular and Extra-peninsular Electricity Systems” (henceforth, non-mainland systems, or NMSs, where the mainland refers to the Iberian Peninsula—Spain and Portugal). This term refers to four territories composed of 10 subsystems, in terms of electrical power generation: (1) and (2) the cities of Ceuta and Melilla on the coast of Morocco; (3) the four Balearic Islands, separated into two subsystems: Mallorca–Menorca (Mallorca is interconnected to the mainland by cable) and Ibiza–Formentera; and (4) the Canary Islands: Tenerife, Gran Canaria, El Hierro, La Palma, La Gomera, Lanzarote, and Fuerteventura (the latter two are interconnected), constituting six differentiated subsystems. Given their isolated position and small size, NMSs present their own limitations and constraints affecting the electrical supply, resulting in higher investment and operating costs than a typical interconnected mainland grid system. In the same way, their generation activity in these territories is not regulated according to the mainland model of a wholesale market, since this would not correctly respond to the aim of guaranteeing the electrical power supply by meeting demand efficiently, in cost terms. As is well known, generation in NMSs is through coal-fired, fuel-oil, or combined cycle generators, and, to a lesser extent, by wind, PV, and cogeneration facilities. Bearing in mind that the surface area of Spain is about 505,940 km2 [8], the NMSs occupy 12,607 km2—that is, 2.5% of the national territory. Being clearly a small area, it is further divided into 11 islands, plus the cities of Ceuta and Melilla on the coast of Morocco. In fact, the largest of these systems is 30 times smaller than the mainland system. This means that the average size of their generators (31 MW) is much lower than those on the mainland (336 MW). As seen in Table1, it is striking how the number of generating plants installed in the NMSs is quite similar to that on the mainland.

Table 1. Installed capacity and power plants in each electrical power subsystem [9].

Subsystem Installed Capacity (MW) Number of Plants Average Size (MW) Melilla 94 8 12 Ceuta 98 10 10 La Palma 105 11 10 El Hierro 15 9 2 La Gomera 21 10 2 Tenerife 1046 23 46 Gran Canaria 999 20 50 Lanzarote–Fuerteventura 419 25 17 Mallorca–Menorca 1944 32 61 Ibiza–Formentera 331 16 21 Total NMS 5074 164 31 Total Mainland 54,692 190 336

The small size of the power stations is a handicap that raises the generation costs, despite using mature conventional technologies. These non-mainland electricity systems are fragile, both in generation and in transport infrastructure. As seen in Figure1, siting restrictions lead to reliance on a limited number of facilities, multiplying any problems in generation or in the grid. Sustainability 2018, 10, x FOR PEER REVIEW 3 of 20

Furthermore, the local peculiarities of NMSs have limited the mix of sources. In these territories, the least variable cost technologies, such as hydropower or nuclear, are not suitable. In the first case, becauseSustainability there2018 is, 10a ,lack 2572 of suitable natural resources for traditional technology and, in the second case,3 of 20 because it is not viable in such small subsystems from an economic point of view.

FigureFigure 1. 1. LocationLocation of of thermal thermal power power plants plants in in the the Canary Canary Islands Islands [10]. [10].

GivenFurthermore, this inherent the local fragility, peculiarities the operating of NMSs criter haveia limitedof isolated the mixsystems of sources. are different In these from territories, those ofthe interconnected least variable continental cost technologies, grids. In such the asformer, hydropower a higher or priority nuclear, must are notbe given suitable. to the In reliability the first case, of supply,because which there isalso a lack affects of suitable the costs. natural For resources this reason, for traditional much higher technology reserve and, output in the margins second case,are necessarybecause it to is guarantee not viable coverage in such small of the subsystems demand than from those an economic needed in point larger of systems, view. as seen in Table 2. ThisGiven reserve this margin inherent is also fragility, related the with operating the electrical criteria coverage of isolated index systems (CI), and are it different is a measure from of those the availableof interconnected capacity over continental and above grids. the Incapacity the former, needed a higher to meet priority normal must peak be demand given tolevels the reliability[11]. It is usuallyof supply, expressed which as also a percentage. affects the costs. For this reason, much higher reserve output margins are necessary to guarantee coverage of the demand than those needed in larger systems, as seen in Table2. This reserve margin is also relatedTable with 2. Objective the electrical reserv coveragee margins [11]. index (CI), and it is a measure of the available capacity over andSubsystem above the capacityReserve needed Margin to meet (%) normal peakCI demand levels [11]. It is usually expressed as a percentage.Melilla 90 1.90 Ceuta 80 1.80 La PalmaTable 2. Objective reserve 80 margins [11]. 1.80 El Hierro 80 1.80 Subsystem Reserve Margin (%) CI La Gomera 80 1.80 TenerifeMelilla 9050 1.901.50 Ceuta 80 1.80 GranLa Canaria Palma 80 50 1.80 1.50 LanzaroteEl Hierro 8060 1.801.60 FuerteventuraLa Gomera 8070 1.801.70 MallorcaTenerife 5040 1.501.40 Gran Canaria 50 1.50 Menorca 80 1.80 Lanzarote 60 1.60 Ibiza–FormenteraFuerteventura 7050 1.70 1.50 MainlandMallorca 4010 1.401.10 Menorca 80 1.80 Similarly, climate, orography,Ibiza–Formentera and the seasonality 50of demand in 1.50touristic locations also impose Mainland 10 1.10 additional costs. In the same context, there are also greater environmental requirements, e.g., protection of fauna and flora. InSimilarly, brief, these climate, singularities orography, lead and to higher the seasonality generation of demandcosts than in those touristic in the locations mainland. also This impose is especiallyadditional true costs. given In the the same strong context, dependence there are also of an greater NMS environmental on fossil fuels. requirements, These higher e.g., costs protection have ofa differentfauna and structure flora. than those in the mainland, since variable costs prevail over fixed costs. In brief, these singularities lead to higher generation costs than those in the mainland. This is especially true given the strong dependence of an NMS on fossil fuels. These higher costs have a different structure than those in the mainland, since variable costs prevail over fixed costs. Sustainability 2018, 10, x FOR PEER REVIEW 4 of 20 Sustainability 2018, 10, 2572 4 of 20 1.2. The Nature of the Generation Activity in Non-Mainland Systems 1.2. TheWith Nature respect of the to Generationthe configuration Activity of in the Non-Mainland electricity market Systems and its stakeholders, it is convenient to establishWith respect the differences to the configuration between NMSs of the electricityand mainland market territories. and its stakeholders, The production it is convenientdispatch, the to establisheconomic the regime differences of the betweenelectric power NMSs andproduction mainland facilities, territories. the Thedetermination production of dispatch, the price the of economic demand, regimeand the of additional the electric costs power of production production activity facilities, are thethe determinationfour basic differences of the price that ofwe demand, briefly comment and the additionalon. costs of production activity are the four basic differences that we briefly comment on. Firstly,Firstly, in in NMSs, NMSs, a a production production dispatch dispatch is is established established for for each each of of the the isolated isolated electrical electrical systems systems of theof the non-mainland non-mainland territories. territories. Unlike Unlike the the mainland mainland systems, systems, in whichin which the the matching matching of theof the Operator Operator of theof the Iberian Iberian Energy Energy market market (OMIE) (OMIE) is carried is carried out exclusively out exclusively according according to market to market criteria, criteria, in the NMSs, in the theNMSs, system the operatorsystem operator (SO) carries (SO) out carries generation out generation schedules schedules at a weekly, at daily,a weekly, and intradailydaily, and periodicity. intradaily Theseperiodicity. schedules These are schedules the result are of a the dispatch result inof threea disp phases:atch in athree first phase,phases: in a which first phase, the demand in which is met the withdemand exclusively is met with economic exclusively criteria; economic a second criteria; one, with a second economic one, and with safety economic criteria; and and safety a third criteria; one, takingand a third into accountone, taking the possibleinto account restrictions the possi ofble the restrictions transport network. of the transport network. Secondly,Secondly, forfor thethe energyenergy productionproduction facilitiesfacilities inin thethe NMSs,NMSs, threethree typestypes ofof remunerationremuneration schemesschemes areare established,established, inin orderorder toto helphelp distributedistribute thethe fixedfixed costscosts andand thethe variablevariable generationgeneration costscosts associatedassociated withwith thethe singularitiessingularities ofof thesethese subsystems.subsystems. Third,Third, thethe electricityelectricity priceprice ofof thethe NMSsNMSs dependsdepends onon thethe movingmoving averageaverage ofof thethe OMIEOMIE peninsularpeninsular pricesprices ofof thethe 1212 monthsmonths prior prior to to delivery delivery of of the the supply, supply, corrected corrected by by a coefficienta coefficient of of targeting, targeting, which which is theis the reason reason that that this this new new reference reference index index considers considers the the variation variation of theof the generation generation costs costs of eachof each hour hour in eachin each NMS. NMS. Finally,Finally, forfor thesethese isolatedisolated systems,systems, thethe extraextra costcost ofof thethe productionproduction activityactivity isis defineddefined asas thethe sumsum ofof thethe extraextra costscosts ofof generationgeneration inin eacheach ofof thethe isolatedisolated systems,systems, andand thethe incomeincome receivedreceived fromfrom thethe acquisitionacquisition ofof energyenergy onon thethe demanddemand sideside (discounting(discounting thethe conceptsconcepts destineddestined forfor interruptibilityinterruptibility andand compensationcompensation toto thethe marketmarket andand systemsystem operator).operator).

2.2. TheThe CanaryCanary Islands’Islands’ Non-MainlandNon-Mainland ElectricityElectricity SystemsSystems (NMSs)(NMSs)

2.1.2.1. SpecificSpecific FactorsFactors forfor thethe CanaryCanary IslandsIslands TheseThese singularitiessingularities ofof NMSsNMSs derivederive notnot onlyonly fromfrom thethe largelarge dependencedependence onon fossilfossil fuels,fuels, butbut alsoalso fromfrom thethe useuse ofof oversizedoversized equipmentequipment andand thethe relativelyrelatively longlong distancesdistances betweenbetween generationgeneration andand consumptionconsumption locations,locations, whichwhich causescauses energyenergy losseslosses inin thethe grid.grid. AsAs anan example,example, FigureFigure2 2 shows shows that that the the highest highest generation generation costs costs in in the the islands islands appear appear at at night night whenwhen thethe demanddemand isis low,low, contrary contrary to to continental continental systems. systems.

Canary Islands Mainland

180.0 57.0 MAINLAND IN COST GENERATION 175.0 56.5 170.0 56.0 165.0 55.5 160.0 55.0 (€/MWh) 155.0 54.5 150.0 54.0 145.0 53.5 140.0 53.0 CANARY CANARY ISLANDS (€/MWh) GENERATION COST GENERATION IN THE 135.0 52.5 130.0 52.0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 TIME (hours)

FigureFigure 2.2. GenerationGeneration costscosts ofof thethe IberianIberian systemsystem vs.vs. thethe CanaryCanary IslandsIslands [Source:[Source: authors].authors]. Sustainability 2018, 10, 2572 5 of 20 Sustainability 2018, 10, x FOR PEER REVIEW 5 of 20

This is due to the fact that the efficiency of large generators drops at the low outputs required to This is due to the fact that the efficiency of large generators drops at the low outputs required to cover low demand. Thus, changing to a mixed structure—that is, using different capacity increases, cover low demand. Thus, changing to a mixed structure—that is, using different capacity increases, as shown in Figure 3—would raise the overall efficiency of the facilities and lower costs, thus as shown in Figure3—would raise the overall efficiency of the facilities and lower costs, thus adjusting adjusting better to such demand curves. better to such demand curves.

Capacity of installed power plants in the Canary Islands: 200 MW 100 MW 50 MW

550

500

450

400

350

300

250

200 DEMAND (MW) DEMAND

150

100

50

0

Configuration (a) Configuration (b) Configuration (c) Mixed configuration

TIME (h)

FigureFigure 3.3. DemandDemand curvescurves basedbased onon diversediverse configurationsconfigurations [Source:[Source: authors].authors].

In fact, the Canary Islands’ NMS includes areas with high potential energy resources with In fact, the Canary Islands’ NMS includes areas with high potential energy resources with adequate conditions for integrating renewable generation [12]. Recent studies have used adequate conditions for integrating renewable generation [12]. Recent studies have used sophisticated sophisticated models to simulate these electrical systems, including scenarios with a 100% renewable models to simulate these electrical systems, including scenarios with a 100% renewable electricity electricity supply [13]. Others, like Schallenberg-Rodríguez and García Montesdeoca [14], have supply [13]. Others, like Schallenberg-Rodríguez and García Montesdeoca [14], have studied the studied the viability of offshore wind energy as the first step in energy planning. However, besides viability of offshore wind energy as the first step in energy planning. However, besides the study the study performed by Guerrero-Lemus et al. [15], the operation of these networks is notably performed by Guerrero-Lemus et al. [15], the operation of these networks is notably complicated by complicated by insufficient interlinking within the network, difficulties in their territorial expansion insufficient interlinking within the network, difficulties in their territorial expansion for environmental for environmental reasons, and voltage levels lower than those in mainland networks. These factors reasons, and voltage levels lower than those in mainland networks. These factors are combined with are combined with the difficulty of managing and scheduling intermittent generation sources that the difficulty of managing and scheduling intermittent generation sources that depend on wind speed depend on wind speed and clear skies, for example. This approach has led to a limited use of and clear skies, for example. This approach has led to a limited use of renewable energy sources renewable energy sources and a power system with few generation nodes, distant from each other and a power system with few generation nodes, distant from each other and from the consumers, and from the consumers, which implies higher costs. which implies higher costs. 2.2. Configuration of the Generation Facilities 2.2. Configuration of the Generation Facilities According to the latest data published by the Canary Islands’ government [10], shown in Table According to the latest data published by the Canary Islands’ government [10], shown in Table3 3 and Figure 4, the power installed on each island is grouped according to the kind of energy source and Figure4, the power installed on each island is grouped according to the kind of energy source used. Renewable energy sources provide only 12.0% of the total energy requirements in the Canary used. Renewable energy sources provide only 12.0% of the total energy requirements in the Canary Islands, adding up to 367.7 MW, distributed mainly between photovoltaic, with 180.5 MW (49.1%), Islands, adding up to 367.7 MW, distributed mainly between photovoltaic, with 180.5 MW (49.1%), and wind power, with 158.6 MW (43.1%). Although, as in previous years, the share of electricity and wind power, with 158.6 MW (43.1%). Although, as in previous years, the share of electricity produced from renewable sources in the Canary Islands is relatively small when compared to the produced from renewable sources in the Canary Islands is relatively small when compared to the total total electricity generated. It is important to note that the island of El Hierro, thanks to its hydro-wind electricity generated. It is important to note that the island of El Hierro, thanks to its hydro-wind power plant, reached 66.1% energy use from renewable sources in July 2016. power plant, reached 66.1% energy use from renewable sources in July 2016. Sustainability 2018, 10, 2572 6 of 20

Table 3. Contribution of different power sources to the Canary non-mainland system (NMS) (MW) [10].

Primary Energy Sources Gran Canaria Tenerife Lanzarote FuerteventuraLa Palma La Gomera El Hierro Canary Islands % of Total Petroleum Derivatives Thermal power stations 999.2 1046.5 232.3 187.0 105.3 21.2 14.9 2606.4 85.1 Refinery - 25.9 - - - - - 25.9 0.80 Cogeneration 24.9 39.2 - - - - - 64.1 2.10 Total oil derivatives 1024.1 1111.6 232.3 187.0 105.3 21.2 14.9 2696.4 88.0 Renewable Sources Wind 88.1 36.7 13.4 13.1 7.0 0.4 - 158.6 5.18 Photovoltaic 40.0 115.0 7.8 13.1 4.6 0.04 0.03 180.5 5.90 Small-scale Hydro - 1.2 - - 0.8 - - 2.0 0.07 Hydro-wind ------22.8 22.8 0.75 Biogas (landfill) - 1.6 2.1 - - - - 3.7 0.10 Total renewable sources 128.1 154.5 23.3 26.2 12.4 0.4 22.9 367.7 12.0 Total 1152.2 1266.1 255.6 213.2 117.7 21.6 37.8 3064.0 100 Sustainability 2018, 10, x FOR PEER REVIEW 7 of 20

Given that each island has its own peculiarities, both geographical and social-economic, there is Sustainabilitya very diverse2018, energy10, 2572 mix among them, as shown in Figure 4, which also presents the energy mix7 of for 20 mainland Spain.

Figure 4. Technological structure for power generation in the Canary NMS [10]. Figure 4. Technological structure for power generation in the Canary NMS [10]. First, in small islands like La Gomera, El Hierro, or La Palma, an energy mix based on combined Given that each island has its own peculiarities, both geographical and social-economic, there is a cycles or steam turbines is not possible due to the extra costs generated by the associated very diverse energy mix among them, as shown in Figure4, which also presents the energy mix for infrastructure. The same happens in these islands for renewable energy based on waste, biomass, or mainland Spain. solar energy. Second, islands like Tenerife and Lanzarote have a geothermal potential that has not First, in small islands like La Gomera, El Hierro, or La Palma, an energy mix based on combined yet been rigorously exploited. The authors consider that a study in this aspect would be relevant in cycles or steam turbines is not possible due to the extra costs generated by the associated infrastructure. order to determine this potential. Third, most of the total wind energy generation is located in Gran The same happens in these islands for renewable energy based on waste, biomass, or solar energy. Canaria with 63.6%, mainly due to the greater amount of wind power installed on this island (55.6% Second, islands like Tenerife and Lanzarote have a geothermal potential that has not yet been rigorously of the total) followed by Tenerife with 18.1%. The smaller islands show much lower production exploited. The authors consider that a study in this aspect would be relevant in order to determine percentages in the global calculation due to the size of their wind power plants. All this reflects the this potential. Third, most of the total wind energy generation is located in Gran Canaria with 63.6%, difference in the energy mix of the mainland. Another important factor to bear in mind with these mainly due to the greater amount of wind power installed on this island (55.6% of the total) followed systems are losses in power transportation and distribution. In 2016, these losses were about 586,075 by Tenerife with 18.1%. The smaller islands show much lower production percentages in the global MWh, i.e., 6.7% of the total electricity supplied to the grid. By island, the largest percentage loss was calculation due to the size of their wind power plants. All this reflects the difference in the energy in Tenerife with 7.9%, followed by La Gomera and La Palma with 7.2%. The smallest losses occurred mixin Elof Hierro the mainland. (4.4%) and AnotherLanzarote important (5.0%). In factorrecent toyears, bear in in the mind overall with calculation these systems for the are islands, losses the in powerpercentages transportation of annual andlosses distribution. rose by 0.3%, In a 2016, trend these that has losses been were continuing about 586,075 since 2012. MWh, Regarding i.e., 6.7% the of thequality total of electricity the network, supplied Table to 4 theshows grid. a comparison By island, the of the largest Canary percentage and Balearic loss was Islands’ in Tenerife NMSs withwith 7.9%,that on followed the Iberian by La mainland, Gomera andwhere, La Palmain proportion with 7.2%. to the The different smallest lengths losses occurredin kilometers in El of Hierro their (4.4%)transportation and Lanzarote networks, (5.0%). both In the recent average years, time in the of overall interruption calculation (ATI) for and the the islands, energy the not percentages provided of(ENP) annual are losseshigher rose for the by 0.3%,former, a trend especially that has for beenthe Canary continuing Islands. since The 2012. percentage Regarding of the the energy quality not of theprovided network, (PENP) Table is4 showsobtained a comparison as the ratio ofbetween the Canary the ENP and Balearicand the new Islands’ demand NMSs forecast with that (NDF) on the for Iberianthe period. mainland, where, in proportion to the different lengths in kilometers of their transportation networks, both the average time of interruption (ATI) and the energy not provided (ENP) are higher for the former,Table 4. especially Quality of forthe theelectricity Canary transportation Islands. The network percentage [16]. ofAbbreviations: the energy notENP: provided energy not (PENP) is obtained asprovided; the ratio PENP: between percentage the ENP of the and energy the new not pr demandovided; forecastATI: average (NDF) time for of theinterruption. period. In addition, the cost of generation on the islands is very different from the cost in the Spanish Mainland Balearic I. Canary I. Mainland Balearic I. Canary I. mainland. It is evident that this is largely attributable to the lower participation of the technologies with lower generation costsENP (nuclear(MWh)|PENP and hydroelectric) (%) in the energy ATI mix. (min) Examining the evolution of the average2012 price of133 generation|2.21 in7|1.93 the Canary 224|1.09 Islands between 0.28 2012 and0.68 2015 published 13.25 by the system operator [162013], the 1156|1.80 Canary Islands 81|2.03 have by far 72|1.70 the highest 2.47 costs at 196.16 7.50€ /MWh, 4.38 compared to the Balearic Islands2014 and204|1.81 to the mainland 13|1.99 with 141.33 148|1.63€/MWh 0.44and 46.61 €/MWh, 1.21 respectively. 9.04 Based on Noussan et2015 al. [17 ], it53|2.06 would be relevant 29|3.12 to analyze 150|3.26 the performance 0.11 indicators 2.66 of electricity 9.08 production in these isolated systems, considering the proportion of renewable energy sources, primary energy consumption, and CO2 emissions. Sustainability 2018, 10, x FOR PEER REVIEW 8 of 20

Sustainability 20162018, 10, 257278|1.67 0.3|3.07 457|1.93 0.16 0.03 27.45 8 of 20

InTable addition, 4. Quality the cost of the ofelectricity generation transportation on the island networks is very [16 different]. Abbreviations: from the ENP: cost energyin the Spanish not mainland.provided; It is PENP: evident percentage that this of is the largely energy attributable not provided; to ATI: the averagelower participation time of interruption. of the technologies with lower generation costs (nuclear and hydroelectric) in the energy mix. Examining the evolution of the average priceMainland of generation Balearic in the I. Canary Canary Islands I. Mainland between 2012 Balearic and I. 2015 Canary published I. by the system operator [16], theENP Canary (MWh)|PENP Islands have (%) by far the highest costs ATI at 196.16 (min) €/MWh, compared to the Balearic Islands and to the mainland with 141.33 €/MWh and 46.61 €/MWh, respectively. Based 2012 133|2.21 7|1.93 224|1.09 0.28 0.68 13.25 on Noussan2013 et al. 1156|1.80 [17], it would 81|2.03 be relevant 72|1.70 to analyze 2.47the performance 7.50 indicators 4.38 of electricity production2014 in these 204|1.81 isolated systems, 13|1.99 considerin 148|1.63g the proportion 0.44 of 1.21renewable 9.04energy sources, primary energy2015 consumption, 53|2.06 and 29|3.12 CO2 emissions. 150|3.26 0.11 2.66 9.08 2016 78|1.67 0.3|3.07 457|1.93 0.16 0.03 27.45 2.3. Energy Mix 2.3. Energy Mix In the Canary Islands, internal production represents a very small fraction of the primary energy, that amountIn the Canary being Islands,the common internal contribution production of represents all renewable a very energies small fraction (wind, ofphotovoltaic, the primary hydro- energy, wind,that amount small-scale being thehydro, common and contributionlandfill biogas). of all Re renewableflecting energiesthe meteorological (wind, photovoltaic, conditions, hydro-wind, its total participationsmall-scale hydro, has been and landfillpractically biogas). stabilized Reflecting for 2 theyears, meteorological with a contribution conditions, to the its totalgroup participation of primary energieshas been hardly practically reaching stabilized 1.50% for in 22016. years, The with absenc a contributione of hydroelectric to the group installations of primary (with energies the exception hardly ofreaching the recent 1.50% start-up in 2016. of the The wind-pumped absence of hydroelectric hydro generation installations plant in (with El Hierro) the exception constrains of the a greater recent participationstart-up of the of wind-pumped renewable energies hydro generationand maintains plant levels in El Hierro) well below constrains those a reached greater participationin Spain or elsewhereof renewable in the energies European and Union. maintains Indeed, levels Figure well 5 below shows those the percentage reached in contribution Spain or elsewhere of the different in the sourcesEuropean and Union. technologies, Indeed, in Figure terms5 showsof input the into percentage the network contribution for 2016. of In the particular, different the sources following and factstechnologies, deserve inspecial terms mention. of input In into the the first network place, forthe 2016. energy In particular,policy in the the Canary following Islands facts must deserve be clearlyspecial mention.improved. In These the first islands place, have the energy adequate policy natu inral the resources Canary Islands to increase must bethe clearly contribution improved. of renewableThese islands energies. have adequateCurrently, natural the Canary resources Islands to ar increasee ranked the atcontribution the bottom in of the renewable use of renewable energies. energy,Currently, and the they Canary are a IslandsSpanish are region ranked that at depends the bottom mo inre theon fossil use of fuels. renewable A clear energy, reference and to they analyze are a isSpanish the case region of Iceland that depends and its more energy on fossilplan fuels.[18]. In A clearthis plan, reference the toenergy analyze policy is the of case Iceland of Iceland could and be categorizedits energy plan as ambitious [18]. In this with plan, its the aims energy at carbon policy neutrality, of Iceland in could that bethe categorized use of fossil as fuels ambitious is reduced with asits much aims atas carbon possible. neutrality, Iceland inis thatalready the usewell of underwa fossil fuelsy in is this reduced regard, as muchsince asall possible.sectors in Iceland Iceland, is exceptalready for well fishing underway and intransportation, this regard, since use all most sectorsly renewable in Iceland, exceptenergy for from fishing hydro and or transportation, geothermal sources.use mostly renewable energy from hydro or geothermal sources.

FigureFigure 5. 5. PercentagePercentage participation participation of of different different electrical energy sources in the European context [[10].10].

Fossil fuel supplies have a huge relevance towards end users within the structure of the Canary Fossil fuel supplies have a huge relevance towards end users within the structure of the Canary Islands’ energy sector. Indeed, petroleum products for end users absorb most of the demand for final Islands’ energy sector. Indeed, petroleum products for end users absorb most of the demand for energy, reaching 79.68% of that figure in 2016. The remaining 20.32% is composed of 20.08% in final energy, reaching 79.68% of that figure in 2016. The remaining 20.32% is composed of 20.08% in Sustainability 2018, 10, 2572 9 of 20 electricity and 0.24% in direct use of solar thermal energy. Most of the direct fuel consumption occurs in the transportation sector, which receives 74.30% of the final energy in its three modes: land-based (34.35%), air (32.48%), and maritime (7.47%).

3. Evolution of the Regulatory Framework of the NMSs Since the beginning of 1998, the Spanish electricity sector has undergone a huge transformation, owing to the regulatory modifications in the 96/92/EC Directive [19], whose fundamental objective was to take the first steps towards an internal electricity market in the European Union, starting with the liberalization of both generation and commercialization of the electricity industry [20–22]. As already mentioned, the NMSs are subject to special regulations for electric energy supply due to their specific isolated characteristics. Law 54/1997 [23] was enacted with the purpose of maintaining prices similar to those in the Iberian mainland system. It established a mechanism of economic compatibility, taking into account the higher cost of generation in the isolated systems, hence avoiding discrimination against their consumers and retailers. Thus, the energy output was remunerated according to mainland prices, adding a further payment to cover the specific costs of these systems, including generation costs unaffordable from the income obtained there. Thus, a dispatch mechanism was applied to pay for the units or batches of power generated. This gave preference to economic ‘merit’ until the planned demand was met, maintaining reliability and quality of supply. The system operator (SO) is responsible for this dispatch process. As a compensatory measure, a mechanism of economic compatibility was established for the demand from energy buyers, thus avoiding any discrimination with respect to the buyers in the mainland system. There was, however, a difference generated between costs and incomes of the activities with regulated remuneration, which generated a rising debt in the sector. In order to balance this, the Spanish government analyzed issues such as the variation over time of such compensation for the generation activity in the NMSs and proposed several measures. Among them, the most important was to begin the overhaul of the legislation in force until then. Indeed, 2012 and 2013 were years with several regulatory changes in the electric utility sector. This paper cannot cover the entire regulatory framework of this period. Nevertheless, Table5 provides a brief summary of the modifications affecting non-mainland territories. Royal Decree Law 13/2012 [24] incorporates into the Spanish legal framework Directive 2009/72/EC of the European Parliament and of the Council [25]. It establishes the remuneration criteria for the conventional generation regime in the non-mainland electricity systems and initiates the revision of the remunerative model of fixed and variable costs for power-generating facilities, which then came into effect on 1 January 2012 with Royal Decree 20/2012 [26].

Table 5. Regulatory modifications of the regulatory framework of the NMSs in Spain.

Date Legislation Status Modified Aspects in the NMS Ref 27/Nov/1997 L 54/1997 A Recognizes the necessity of a singular regulation according to location [23] 01/Jan/2012 RDL 1/2012 C Freezes the premium for new installations in the special regime [27] 30/Mar/2012 RDL 13/2012 C Correction of the remuneration of the generation activity [24] 13/July/2012 RDL 20/2012 C Establishment of costs of generation in the ordinary regime [26] 29/Oct/2013 L 17/2013 C Mechanism suspension of costs compensation [28] 13/July/2013 L 9/2013 C Finance of the extra cost of generation [29] 26/Dec/2013 L 24/2013 C Recognition of the extra cost connected to singularity [7] 06/June/2014 RD 413/2014 C Renewable energies, cogeneration, and wastes [30] 31/July/2015 RD 738/2015 C Regulation of the production and dispatch of electric energy [31] C: current; A: abolished; L: law; RDL: Royal Decree-Law; RD: Royal Decree.

In order to guarantee supply and stimulate competition, Law 17/2013 [28] was passed to further ensure electricity supply, allowing a reduction in the costs of the activity itself. Finally, Law 24/2013 [7] repealed Law 54/1997 [23] establishing mechanisms for specific regulation of the NMSs, encouraging renewable sources that can be technically integrated and reduce costs in the Sustainability 2018, 10, 2572 10 of 20 system. It stipulates that criteria homogeneous to those for generation in the mainland should be applied in calculating remuneration. Finally, the specific regulatory framework for the NMSs, and therefore for the Canary Islands, in particular, is laid out with RD 738/2015 [31]. This fulfills the mandate of RD-Law 13/2012 [24] and establishes the financial regime for the remuneration of the power-generating units.

4. Analysis and Application of the New NMS Regulations

4.1. Introduction to RD 738/2015 Even though Royal Decree 413/2014 [30] was intended to regulate electricity production from renewable sources (at first, this RD led to certain controversies with Directive 2012/27/EU [32]), RD 738/2015 [31] regulates both overall production and the dispatch procedure. As a general idea, it attempts to adopt a model that prioritizes the efficiency of technologies, and the management, maintenance, and renovation of the generation facilities in operation. This RD-law is basically divisible into four parts. The first one focuses on the establishment of a dispatch pool of energy production for each of the isolated non-mainland systems. Likewise, this procedure is defined in three phases: firstly, one during which supplies are selected exclusively on economic criteria; a second one, on economic and reliability criteria; and a third one taking into account the possible restrictions of the transport network. This process also defines the facilities which should be covering the demand, taking into account their variable costs, the technical restrictions, and the reserve potential to guarantee the quality of service. This first important change has two implications: producers are paid according to the established regime for the power generated, and, in turn, direct consumers and retailers start to acquire energy at the demand price. This latter value is obtained from the corrected mainland price, applying a coefficient that takes into consideration the cost variation during each hour of generation. This coefficient (pointer) is explained later, and it is a value that the system operator registers. The second part deals with the financial regime of the power generation facilities. It establishes three remunerative regimes depending on their type: (i) an additional remunerative regime; (ii) a specific remunerative regime; and (iii) a financial regime without a right to either of the previous ones. The third and fourth parts respectively clarify the methodology used to determine the demand price, the cost of generation and extra cost. The specific remunerative regime is set out in Guerrero-Lemus et al. [1], following the rules of the reference scheme [30] for the case of wind power. The part corresponding to the additional remunerative regime [31] remains lost in no man’s land, since, given the typical conventional facilities in isolated systems, there are still no types of facilities on which to base applicable and viable models in these territories. This appears to be a promising regulatory framework with great possibilities, but it is difficult to apply in practice because of its rigid administrative procedure. Next, the aim is to study in more detail how the creation of this market has influenced the isolated subsystems since this decree came into effect. This involves performing a practical application to the Canary Islands’ system, using the specific case of the new wind-pumped hydro plant on El Hierro.

4.2. Determination of the Demand Price, the Generation Cost, and the Extra Cost Before RD 738/2015 came into effect, the demand acquisition price for direct retailers and consumers in NMSs was governed by the same cost structure as that in the mainland. The final hourly price of the demand followed the expression below (note that the equations are in reference to a 1 h time interval, so they are denoted by h):

FPh = OMIEh + SAh (1) where OMIEh is the cost of purchasing energy in the daily and intraday market (in Spain: OMIE), and SAh represents the costs incurred by the system adjustment services. Sustainability 2018, 10, 2572 11 of 20

Once RD 738/2015 entered into effect, the NMS exchanged its reference index (FPh) for another one that takes into account the variation of the generation costs in each hour, PhDemand(j). So, for each electrical system (j), the new expression is as follows:

PhDemand(j) = Pmov-yr-mainland × Ah(j)/Pmov-yr(j) (2) where PhDemand(j) is the hourly price of the demand; Pmov-yr-mainland is the average final mainland price of the moving year. Ah(j) is the hourly pointing of the average final mainland price, obtained from an hourly matrix for each isolated system. Finally, Pmov-yr(j) is the average price of the variable costs in the NMS in a moving year, obtained from the weighted average of the monthly pointers in the NMS during the last 12 months. Unlike the previous system, the PhDemand(j) will be different in each subsystem (j). A notable aspect is that, since this RD came into effect in the non-mainland territories, the price of the electric energy depends on the moving average of the mainland OMIE prices in the 12 months previous to the dispatch of the supply, corrected by a pointer coefficient Ah. Therefore, this new reference rate takes into account the variation in the generation costs of every hour in each of the NMSs. Lastly, in regard to the price of both generation activity and the extra cost in the isolated power systems of non-mainland territories, the following is noted. The final hourly time-of-generation price is determined by the quotient between the sum of adjustment and generation service costs in NMS generation plants and the total energy generated at the terminals (‘bus-bars’) before entering the grid. The extra cost of generation activity in such systems is defined as the sum of the generation extra costs in each of the isolated systems—which can be calculated from the difference between generation and adjustment service costs—and the income derived from meeting the electricity demand, after subtracting the amounts intended to account for interruptibility and remuneration of the SO and OMIE.

4.3. Impact on the Purchase Price of the Demand As mentioned earlier, the price of demand in the NMSs is made up differently from that in the mainland, where the price is still indexed to the market price (OMIE). After the implementation date of RD 738/2015, the base reference is the average market price of the OMIE time market during the 12 months previous to the commencement of supply. On using a more stable reference, the volatility of the daily market-price derived from matching the supply and demand structures with seasonal influences will no longer be reflected in the demand acquisition prices in the NMS. Until a historical database of the calculated pointers is published by the system operator, it will be too complicated to estimate variable Ah. Consequently, the current uncertainty concerning this will be reflected in the short-term in the bids made by the electricity marketing companies. In preparing this report, only data published during September were considered. Table6 shows that, except for La Gomera, the Ph Demand price was less than the arithmetical average acquisition price on the mainland. However, this does not mean that any future price configured by the electricity marketing companies will be lower for the NMS than for mainland sales, due to the higher costs. Without historical annual data, it is not possible to compare the price of purchasing demand prior to and after the RD came into force. Uncertainty over future variations in purchase prices is reflected in the offers of fixed prices from the marketing companies, as they incorporate risk premiums that then lead to higher priced bids. Furthermore, it can be seen that the periodic price offers are configured taking into consideration pointer percentages different from those earlier than 1 September, which requires consulting the consumption profile. Figure6 illustrates the differences between price pointing prior to the RD coming into force (in the mainland) and later when applied in September (subsystems). The differences between prices during peak and off-peak periods end up being reduced in all subsystems. Sustainability 2018, 10, x FOR PEER REVIEW 12 of 20

Sustainability 2018, 10, 2572 12 of 20 El Hierro 51.29 Mallorca–Menorca 49.98 Table 6. Average purchaseIbiza–Formentera price of demand during September49.902015 [Source: authors]. Ceuta 52.08 SystemMelilla Average Price51.50 in €/MWh Mainland 55.01 However, this does not meanNMS that any future price configured 52.06 by the electricity marketing companies will be lower for the NMS thanSubsystems for mainland sales, due to the higher costs. Without historical annual data, it is notGran possible Canaria to compare the price of 54.15purchasing demand prior to and after the RD came into force. UncertaintyTenerife over future variations in purchase 52.31 prices is reflected in the offers of fixed prices from theLanzarote–Fuerteventura marketing companies, as they incorporate 50.55 risk premiums that then lead to La Palma 53.78 higher priced bids. La Gomera 55.10 Furthermore, it can be seenEl Hierrothat the periodic price offers are 51.29 configured taking into consideration pointer percentages differentMallorca–Menorca from those earlier than 1 September, 49.98 which requires consulting the consumption profile. FigureIbiza–Formentera 6 illustrates the differences between 49.90 price pointing prior to the RD coming into force (in the mainland)Ceuta and later when applied 52.08 in September (subsystems). The Melilla 51.50 differences between prices during peak and off-peak periods end up being reduced in all subsystems.

70.00

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20.00 PRICES PER PERIODS (€/MWh) PERIODS PER PRICES

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0.00 Mainland Tenerife Lanz-Fuerte Gran Canaria El Hierro La Gomera La Palma

Figure 6. Time points of periodical prices using Royal Decree [Source: authors]. Figure 6. Time points of periodical prices using Royal Decree [Source: authors].

4.4. The Particular Case of the Hydro-Wind Plant on El Hierro: “Gorona del Viento” 4.4. The Particular Case of the Hydro-Wind Plant on El Hierro: “Gorona del Viento” We now attempt to analyze the new pricing methodology for the purchase and sale of energy in We now attempt to analyze the new pricing methodology for the purchase and sale of energy in the case of the Canary Islands, with special emphasis on the island of El Hierro due to its power mix the case of the Canary Islands, with special emphasis on the island of El Hierro due to its power mix configuration since opening its wind-pumped hydro plant. configuration since opening its wind-pumped hydro plant. After the publication of Royal Decree 738/2015, a new pricing-matching methodology has been After the publication of Royal Decree 738/2015, a new pricing-matching methodology has been implemented, both in the purchase and in the sale of energy. Table 7 shows the evolution of the implemented, both in the purchase and in the sale of energy. Table7 shows the evolution of the purchase price of energy in the subsystems that make up the Canary Islands’ electricity system. purchase price of energy in the subsystems that make up the Canary Islands’ electricity system. On the other hand, Table8 presents the trends of the sale price of energy in the Canary Islands’ Table 7. Energy purchase price variation in the Canary Islands, €/MWh [13]. subsystems, comparing them with the annual mobile average of the mainland. In both tables, the same trendAverage is observed: Ph Demand El Hierro’s subsystemPrice Year is one Mobile of the most volatilePool due to its specific power mix,GC substantially LF HI different GOM from LP the rest.TF Figure7 showsMainland how the averageMainland price in El Hierro’s15 September subsystem 54.15 is below 50.55 the market51.29 55.10 price on53.78 the mainland.52.31 56.54 55.85 Sustainability 2018, 10, x FOR PEER REVIEW 13 of 20

15 October 55.76 51.59 56.45 55.09 56.01 55.14 55.89 55.20 15 November 54.87 51.85 47.53 54.89 52.18 52.18 55.32 56.78 Sustainability15 December2018, 10, 257248.85 48.85 51.25 50.89 48.21 46.79 55.50 57.62 13 of 20 16 January 44.39 40.61 46.64 47.33 42.81 42.61 55.72 42.40 16 February 42.80 39.92 27.97 46.46 39.74 42.07 54.31 32.98 Table 7. 16 March 43.44Energy 41.05 purchase 35.51 price46.83 variation 41.43 in43.10 the Canary Islands,52.88€/MWh [13]. 33.16 16 April 44.42 41.40 40.53 45.87 42.62 43.21 51.46 28.91 Average Ph Demand 16 May 43.50 40.28 49.68 45.44 40.85 44.06Price Year Mobile49.60 Mainland Pool31.15 Mainland 16 June GC42.00 LF 39.00 HI 30.37 GOM 44.45 LP 40.55 TF 41.44 48.03 41.80 15 September16 July 54.1540.08 50.55 42.39 51.29 26.78 55.10 46.59 53.78 43.61 52.31 41.40 56.5446.64 43.22 55.85 15 October16 August 55.7641.49 51.59 46.27 56.45 34.92 55.09 45.85 56.01 44.74 55.14 43.32 55.8944.71 44.10 55.20 15 November 54.87 51.85 47.53 54.89 52.18 52.18 55.32 56.78 1516 December September48.85 41.79 48.85 48.25 51.25 32.85 50.89 44.10 48.21 43.74 46.79 44.06 55.5043.32 46.89 57.62 16 January 44.39 40.61 46.64 47.33 42.81 42.61 55.72 42.40 16 FebruaryOn the other42.80 hand, 39.92 Table 27.97 8 presents 46.46 the 39.74 trends 42.07 of the sale price54.31 of energy in the Canary 32.98 Islands’ subsystems,16 March comparing43.44 41.05 them 35.51with the 46.83 annual 41.43 mobile 43.10 average of the52.88 mainland. 33.16 16 April 44.42 41.40 40.53 45.87 42.62 43.21 51.46 28.91 16 May 43.50 40.28 49.68 45.44 40.85 44.06 49.60 31.15 16 June 42.00Table 39.00 8. Selling 30.37 price 44.45 variation 40.55 41.44in the Canary Islands,48.03 €/MWh [16]. 41.80 16 July 40.08 42.39 26.78 46.59Average 43.61 Ph 41.40 Sale 46.64 43.22 16 August 41.49 46.27 34.92 45.85 44.74 43.32 44.71Pmov-yr-Mainland 44.10 16 September 41.79 48.25GC 32.85 LF 44.10 43.74HI GOM 44.06 LP TF 43.32 46.89 15 October 51.06 47.24 51.69 50.45 51.29 50.49 51.18 15 NovemberTable 8. Selling50.31 price47.54 variation 43.59 in50.33 the Canary47.84 Islands,47.85 €/MWh[ 50.7316]. 15 December 44.97 40.98 47.17 46.84 44.38 43.07 51.08 16 January 41.06 37.51 Average 42.16 Ph43.79 Sale 39.60 39.42 51.56 Pmov-yr-Mainland 16 February GC 39.55 36.89 LF 25 HI.84 42.92 GOM 36.72 LP 38.87 TF 50.18 16 March 39.99 37.79 32.68 43.11 38.13 39.67 48.67 15 October 51.06 47.24 51.69 50.45 51.29 50.49 51.18 15 November16 April 50.31 40.82 47.54 38.04 37. 43.5924 42.16 50.33 39.16 47.84 39.71 47.85 47.29 50.73 15 December16 May 44.97 39.95 40.98 37.00 45.63 47.17 41.73 46.84 37.52 44.38 40.47 43.07 45.55 51.08 16 January16 June 41.06 38.50 37.51 35.75 27. 42.1684 40.75 43.79 37.17 39.60 37.99 39.42 44.03 51.56 16 February16 July 39.55 3671 36.89 38.82 24.53 25.84 42.67 42.92 39.94 36.72 37.92 38.87 42.72 50.18 16 March 39.99 37.79 32.68 43.11 38.13 39.67 48.67 16 August 37.97 42.36 31.97 41.96 40.95 39.65 40.92 16 April 40.82 38.04 37.24 42.16 39.16 39.71 47.29 16 MaySeptember 39.95 38.28 37.00 44.19 30 45.63.08 40.39 41.73 40.07 37.52 40.36 40.47 39.67 45.55 16 June 38.50 35.75 27.84 40.75 37.17 37.99 44.03 In both 16tables, July the same 3671 trend 38.82 is observed: 24.53 El 42.67 Hierro’s 39.94 subsystem 37.92 is one of 42.72the most volatile due to its specific16 Augustpower mix, substantially 37.97 42.36 different 31.97 from 41.96 the 40.95 rest. Figure 39.65 7 shows how 40.92 the average price 16 September 38.28 44.19 30.08 40.39 40.07 40.36 39.67 in El Hierro’s subsystem is below the market price on the mainland.

70.00

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Average Hierro 20.00 Average HOURLY PRICE DEMAND (€/MWh) 10.00 Mainland

0.00 sep-15 oct-15 nov-15 dic-15 ene-16 feb-16 mar-16 abr-16 may-16 jun-16 jul-16 ago-16 sep-16

MONTHS

Figure 7. Fluctuation in the PhDemand in El Hierro vs. the mainland [Source: authors]. Sustainability 2018, 10, x FOR PEER REVIEW 14 of 20

Sustainability 2018Figure, 10, 25727. Fluctuation in the PhDemand in El Hierro vs. the mainland [Source: authors]. 14 of 20

This trend is repeated in Figure 8: the selling price in the subsystem of El Hierro is lower than the averageThis trend mainland is repeated price. in Figure8: the selling price in the subsystem of El Hierro is lower than the average mainland price. It is also interesting to compare the hourly price of demand in two Canary Islands’ subsystems. Sustainability 2018, 10, x FOR PEER REVIEW 14 of 20 Tenerife60.00 was chosen since it is the provincial capital of the western Canary Islands, as shown in Figure9. It can be observed that the price rises in the Tenerife subsystem during the earliest and latest hours of Figure 7. Fluctuation in the PhDemand in El Hierro vs. the mainland [Source: authors]. the50.00 day. This is because the generators that meet the demand are not working at their highest efficiency and, therefore, costs are higher at those times. However, in El Hierro, those hours coincide with the 40.00This trend is repeated in Figure 8: the selling price in the subsystem of El Hierro is lower than periodsthe average when mainland there is a price. more frequent contribution of wind power, thus resulting in a lower price. PH-sale (Hierro) 30.00 PM-y (Mainland) Average Hierro 60.0020.00 Average Mainland

HOURLY PRICE DEMAND (€/MWh) 50.0010.00

0.00 40.00 oct-15 nov-15 dic-15 ene-16 feb-16 mar-16 abr-16 may-16 jun-16 jul-16 ago-16 sep-16

PH-sale (Hierro) 30.00 PM-y (Mainland) MONTHS Average Hierro 20.00 Average Mainland Figure 8. Fluctuation in Phsale in El Hierro vs. that on the mainland [Source: authors].

HOURLY PRICE DEMAND (€/MWh) 10.00 It is also interesting to compare the hourly price of demand in two Canary Islands’ subsystems.

0.00

Tenerife wasoct-15 chosennov-15 sincedic-15 it isene-16 the provincialfeb-16 mar-16 capitaabr-16 l of may-16 the westernjun-16 Canaryjul-16 ago-16 Islands,sep-16 as shown in Figure 9. It can be observed that the price rises in the Tenerife subsystem during the earliest and latest hours of the day. This is because the generators that meet the demand are not working at their highest MONTHS efficiency and, therefore, costs are higher at those times. However, in El Hierro, those hours coincide with the periodsFigure when 8. Fluctuation there is ina more Phsale frequent in El Hierro cont vs.ribution that on ofthe wind mainland power, [Source: thus authors].resulting in a lower price. Figure 8. Fluctuation in Phsale in El Hierro vs. that on the mainland [Source: authors]. It is also interesting to compare the hourly price of demand in two Canary Islands’ subsystems. Tenerife was chosen since it is the provincial capital of the western Canary Islands, as shown in Figure 9. It49 can be observed that the price rises in the Tenerife subsystem during the earliest and latest hours of the day. This is because the generators that meet the demand are not working at their highest 47 efficiency and, therefore, costs are higher at those times. However, in El Hierro, those hours coincide with45 the periods when there is a more frequent contribution of wind power, thus resulting in a lower price. 43 TENERIFE EL HIERRO 41 PRICE (€/MWh) 49

39 47

37 45

35 43 H1 H2 H3 H4 H5 H6 H7 H8 H9 H10 H11 H12 H13 H14 H15 H16 H17 H18 H19 H20 H21 H22 H23 H24 TENERIFE TIME (hours) EL HIERRO 41 PRICE (€/MWh) FigureFigure 9.9. AverageAverage PhDemandPhDemand fluctuationsfluctuationson onEl ElHierro Hierro vs.vs. TenerifeTenerife [Source: [Source: authors]. authors]. 39 Lastly, in order to show in detail the influence of generation from the wind-pumped hydro plant, Lastly, in order to show in detail the influence of generation from the wind-pumped hydro plant, we37 have studied two days (10/August/2016 in Figure 10 and 16/August/2016 in Figure 11) with we have studied two days (10/August/2016 in Figure 10 and 16/August/2016 in Figure 11) with different energy source mixes, representing the technologies and the resulting price. As expected, the different35 energy source mixes, representing the technologies and the resulting price. As expected, more H1wind-power H2 H3 H4 energy H5 H6 generated, H7 H8 H9 the H10 lower H11 H12 the H13 price H14 H15 in the H16 H17subsystem. H18 H19 H20 H21 H22 H23 H24 the more wind-power energy generated, the lower the price in the subsystem. TIME (hours) Figure 9. Average PhDemand fluctuations on El Hierro vs. Tenerife [Source: authors].

Lastly, in order to show in detail the influence of generation from the wind-pumped hydro plant, we have studied two days (10/August/2016 in Figure 10 and 16/August/2016 in Figure 11) with different energy source mixes, representing the technologies and the resulting price. As expected, the more wind-power energy generated, the lower the price in the subsystem. Sustainability 2018, 10, x FOR PEER REVIEW 15 of 20

80 Sustainability 2018, 10, 2572 15 of 20 Sustainability 2018, 10, x FOR PEER REVIEW 15 of 20 60

80 40

Diesel 60 Wind 20 Hydro PhDemand 40 0

HOURLY PRICE (€/MWh) 01234567891011121314151617181920212223 Diesel Wind 20 -20 Hydro PhDemand

0

HOURLY PRICE (€/MWh) -40 01234567891011121314151617181920212223 TIME (hours)

-20 Figure 10. Hourly price fluctuations vs. demand according to energy source mix 10/August/2016 [Source: authors]. -40 TIME (hours) Figure 11 illustrates that when wind-powered generation completely covers the demand, the purchaseFigure price 10. Hourlyis minimum. price fluctuations Thus, if Gorona vs. demand del Viento according did not to exist,energy the source generation mix 10/August/2016 cost on El Hierro Figure 10. Hourly price fluctuations vs. demand according to energy source mix 10/August/2016 would[Source: be substantially authors]. higher than the current cost, as can be confirmed in the historical series provided[Source: by authors].the system operator. Figure 11 illustrates that when wind-powered generation completely covers the demand, the purchase50 price is minimum. Thus, if Gorona del Viento did not exist, the generation cost on El Hierro would be substantially higher than the current cost, as can be confirmed in the historical series provided40 by the system operator.

30 50

20

40 Diesel 10 Wind 30 Hydro PhDemand 0 01234567891011121314151617181920212223

HOURLY PRICE (€/MWh) 20

-10 Diesel 10 Wind Hydro -20 PhDemand 0 01234567891011121314151617181920212223 HOURLY PRICE (€/MWh) -30 TIME (hours) -10

-20 FigureFigure 11.11. HourlyHourly pricepricefluctuations fluctuations with with the the Gorona Gorona del del Viento Viento plant plant in in operation: operation: 16/August/2016 16/August/2016 [Source: authors]. [Source:-30 authors]. TIME (hours) 4.5. The Self-Consumption Regime and Renewable Energy Market in Isolated Power Systems Figure 11 illustrates that when wind-powered generation completely covers the demand, the purchaseFigureThe concept 11. price Hourly of isself-consumption minimum.price fluctuations Thus, coverswith if Goronathe a wideGorona del range del Viento Viento of energy did plant not consumpt in exist,operation: theion generation 16/August/2016patterns generated cost on Ellocally Hierro[Source: from would authors].generation be substantially facilities higherconnected than inside the current the consumer cost, as cannetwork be confirmed or through inthe a direct historical line, serieseither providedwith a total by theconsumption system operator. of that energy or with the existence of surpluses of the production 4.5.facility The Self-Consumptionthat could be injected Regime intoand Renewablthe networks.e Energy Dehler Market et in al.Isolated [33] Powerexplain Systems that, to foster self- 4.5.consumption, TheThe Self-Consumption concept the of national self-consumption Regime legal and framework Renewable covers ashould Energywide range be Market revisited. of energy in Isolated In consumpt this Power sense, Systemsion Aragonés patterns generatedet al. [34] locallyanalyzedThe from concept this generation regulation of self-consumption facilities in Spain, connected and covers it is ainside wideespecially rangethe consumer relevant of energy tonetwork consumption do the or same through patterns in non-mainland a direct generated line, locallyeithersubsystems, with from a because generationtotal consumption there facilities are many of connectedthat possibilities energy inside or withto theimplement the consumer existence self-consumption networkof surpluses or throughof with the productionrenewable a direct line,facility either that withcould a totalbe injected consumption into the of networks. that energy Dehler or with et al. the [33] existence explain ofthat, surpluses to foster of self- the productionconsumption, facility the national that could legal be injectedframework into should the networks. be revisited. Dehler In etthis al. sense, [33] explain Aragonés that, et to al. foster [34] analyzed this regulation in Spain, and it is especially relevant to do the same in non-mainland subsystems, because there are many possibilities to implement self-consumption with renewable Sustainability 2018, 10, 2572 16 of 20 self-consumption, the national legal framework should be revisited. In this sense, Aragonés et al. [34] analyzed this regulation in Spain, and it is especially relevant to do the same in non-mainland subsystems, because there are many possibilities to implement self-consumption with renewable technology in the Canary Islands. Several specific examples of optimizing renewable energy self-consumption are explained in references [35–37]. Moreover, Kästel and Gilroy-Scott [38] explain that, when grid parity is achieved, high self-consumption levels cannot only be a source of cheaper electricity but can also protect the consumer against energy price inflation. This is a factor to be taken into account in the Canary Islands’ subsystems. It is well known that, in Spain, the activity of electric power production has been characterized by a centralized generation scheme, which is unidirectional and complemented with measures of incentives and control of the performance of demand [39]. However, in recent years, the emergence of new concepts, developments, and systems of generation and control [40] are allowing the gradual evolution from this model to another where the generation of distributed electricity, usually small power, begins to integrate in the network as an element of efficiency, production, and management, and not just as a simple connection for the delivery of the electric energy produced [41]. In addition, this development is particularly attractive from an economic point of view in the NMSs, since the cost of generation is several times higher than in the mainland. Implementation of these facilities would likely reduce the cost of generation in those systems.

5. Discussion A recent MIT study [42] reflects the need to understand how the greater penetration of self-consumption will affect regulation and current business models in the global electricity sector. It is shown that it is possible to reduce costs through a better use of the self-consumption regime. However, there is a need for an efficient implementation of the regulatory framework that regulates the electricity sector in the various regions of the country, which makes the correct implementation of these principles possible. In the case of renewable energies, as the MIT study concludes [42], the value of self-consumption, as the generation of photovoltaic origin and batteries, depends greatly on the geographical location of the facilities. That is why it is not possible to set a standard value for all distributed resources. In this sense, regulatory initiatives of the “Value of Solar” style are erroneous. The RD 900/2015 for self-consumption, therefore, seeks to move towards a system of distributed generation through the sale of surplus mechanisms and instantaneous self-consumption to boost the individual production of energy in small power plants, for consumption in the same location, in those cases that are efficient for the entire electrical system. However, if we extrapolate studies that support that photovoltaic and battery installations are more efficient if they are developed on a large scale, the small scale is not always the best option and, therefore, these facilities may not be economically viable. If we focus on the isolated systems of this study, we can observe how there are several conflicting points for the efficient development of the self-consumption regime. First, the specific regulation of self-consumption, in its fourth article, establishes the condition that the contracted power must be greater than or equal to the installed power of generation. In principle, this does not seem to give rise to storage, as it also limits certain types of facilities and their development, such as cogeneration or waste biodigesters that see their main activity constrained by this condition. Secondly, it is also unclear how the economic regime is related to the self-consumption grid, with specific regulatory regimes for these systems [30,31]. In this sense, it is necessary to develop specific regulations for NMSs beyond the one that exists for the mainland. Regarding the dispatch operations of wind-diesel hybrid generation systems, the MIT study [42] has to be taken into account. The results presented by Hu et al. [43], show that the proposed method has a better overall performance than the existing predefined dispatch strategies for practical implementations. Sustainability 2018, 10, 2572 17 of 20

6. Conclusions It is clearly necessary to encourage further studies that raise awareness of how important it is to support renewable energy technology, especially in these isolated environments where it is not easy to assure the security of supply. As other authors suggest, it is essential to transcend political barriers and vested interests regarding the electricity pool and its market. As an example of such problems, in the Canary Islands, the so-called Canary Energy Plan [44] has shown to be a conjunct of great challenges and good proposals, but it falls short of achieving its main objectives. Due to the enforcement of this new legal framework, a new virtual market has been created for each isolated system, taking into consideration the prices of the moving year on the mainland and the generation costs. The new demand-matching method in the NMSs is reducing the volatility in the market and lowering risk, since 50% of the buying price composition is already known. The configuration of the prices in any buying modality must consider the system’s power-mix. Thus, prices should be configured according to the system where the energy is consumed. The uncoupling of the energy acquisition price from the hourly price bids in the OMIE could cause the commercializing companies a lack of liquidity when covering prices in future markets, hence, the risk premiums included in the contracts might be raised. Those systems with more diverse generation technologies will create a wide monthly price variation, leading to greater uncertainty. Analyzing exclusively the month of September, it is observed that the subsystem that passes through the widest variations in its generation costs is El Hierro due to the impact of its power mix in relation to the demand to be met. It is necessary to improve the regulatory framework in which the distribution companies operate, allowing new, more efficient, and innovative business models to be implemented. For example, incentives to improve quality, reduction of losses in networks (so important in isolated systems given their geographical peculiarities), interconnection times, and innovative aspects in R+D are key measures in this regard. Moreover, a review of the structure of the electricity sector should be carried out in order to minimize the appearance of potential conflicts of interest. Regarding the energy pool market, in order to better integrate self-consumption and to reward flexibility by creating a level playing field for all technologies, it is necessary to propose an improvement in the design of the wholesale market—one that takes into account the flexibility of resources, the format of new needs, and, therefore, of new offers. Additionally, the connection of self-consumption systems, new intelligent applications (such as smart grids), and the greater complexity of the electricity markets reinforce the importance of having adequate information security systems. In other words, it is a question of reaching a framework that enables the electrical system to evolve efficiently in the isolated systems, in such a way as to facilitate the integration of all existing natural resources to contribute to an efficient supply of electricity.

Author Contributions: Both authors have participated directly in performing this research. M.U.-S., as a doctoral student in Industrial Management, has been responsible for gathering the relevant data, processing these data, and writing the original draft. C.R.-M., as his thesis director, has been responsible for the design of the research project and the supervision of its development. Funding: There was no financial founding to support this research. Conflicts of Interest: The authors declare no conflict of interest.

Abbreviations

NMS Non-Mainland Electricity System ENP Energy not provided PENP Percentage of energy not provided REE Red Eléctrica de España OMIE Operator of the Iberian Energy market ATI Average Time of Interruption NFD New demand forecast SO System Operator Sustainability 2018, 10, 2572 18 of 20

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