Special regulation of isolated power systems: The Canary Islands, Spain

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.