The remuneration for combined cycles should consider the additional investments required to maintain their effectiveness as a reliable backup for renewable energy

The significance of combined cycles in the Spanish electricity generation mix has grown and is expected to continue expanding to 2030, owing to their capacity to provide support and flexibility in a system where renewable energy sources are going to play an increasingly prominent role. Consequently, the anticipated capacity market in Spain should not only compensate for the fixed maintenance costs of these facilities but also encompass crucial investments to align them with a more demanding operational environment. These findings are highlighted in the PwC report titled Past, Present, and Future of Combined Cycle Thermal Power Plants, published by the Naturgy Foundation and presented today during a workshop with experts.

“The historical analysis of this technology underscores that combined cycles were initially designed as a primary technology in electricity generation, providing steady capacity and generating a substantial share of energy.

Nevertheless, both presently and in the future, their role will increasingly centre on delivering backup support and flexibility”, said Roxana Fernández, manager of the energy consulting division at PwC and one of the report’s authors.
The progressive incorporation of renewable energy sources into the Spanish electrical system has resulted in a more demanding use of this technology, with frequent stops, starts and continuous load adjustments, “which deviates significantly from the steady-state operation originally envisioned at its inception”.

The preliminary revision of the Spanish National Energy and Climate Plan (PNIEC) for 2023-2030 raises the target for new renewable energy capacity to 139.8 GW while maintaining the requirement for installed combined cycle power capacity at 24.5 GW. With these goals in mind, the authors have projected an estimate of the generation curve for combined cycles in 2030, considering the operation and mix of electricity production technologies since 2021.

The conclusion is that “by 2030, Spain could operate a fleet of combined cycles almost daily to support the integration and fluctuations of photovoltaic technology, resembling the current operational patterns of some cycles. This would necessitate pushing the technical operating limits for which they were originally designed”, according to the PwC report.

The report’s authors contend that by 2030, the demand for backup and flexibility from the cycles will rise, despite their diminished energy contribution. Beyond remunerating their energy contribution, “the projections underscore the necessity to properly acknowledge and compensate for the backup and flexibility that these plants offer to the electricity generation system”.

“As the demand for and generation of energy become increasingly intermittent due to the growth of renewable sources, combined cycles will play a crucial role in maintaining stability in the electrical system”, explained Fernández. She highlighted how the use of this technology in Spain witnessed a notable surge in 2022 compared to 2021, driven by reduced hydroelectric generation amid drought, heightened exports to France and Morocco and a decline in cogeneration.

Elevated unavailability and a decrease in operating hours

According to historical data presented in the report, there has been a 13% decline in the availability of combined cycles since 2002, with a more significant reduction observed in the last three years. The document notes, “This increase in unplanned unavailability is associated with unforeseen maintenance tasks and the decrease in payments for ‘long-term investment incentives’ or ‘medium-term power availability service’, adversely affecting the economic viability of combined cycles”.

Similarly, there has been a 45% decrease in operating hours over the past two decades. The PwC report notes, “This trend has diminished its presence in the daily market, narrowing the recognised ‘thermal gap’, and influencing market prices and the revenues of these power plants”.

Nevertheless, over this period, the role of combined cycles in the electricity generation mix has significantly grown in terms of providing essential backup support and flexibility to the system, intensifying the demands and pushing the boundaries of this technology.

Demand for Capacity Markets

In the expert panel discussion moderated by Oscar Barrero, the energy leader partner at PwC, participants featured José Luis Gil, Director of Regulation at Naturgy; Luis Carlos Postigo, Manager of Gas & Services South West Europe at Siemens Energy; and Luis Marquina, Chairman of the Spanish Association of Batteries and Energy Storage (AEPIBAL).

The Naturgy executive emphasized that “the current operational framework demands ongoing maintenance, and securing approval for these investments with narrow profit margins is challenging”. He expressed strong appreciation for the Government’s decision to make the capacity market mechanism public. Gil stated, “This move provides promising opportunities to reinvest in enhancing combined cycles”. He further noted, “Capacity markets are crucial; if we aim to rely on combined cycles as support amid renewable expansion and the expectation is to be consistently available, proper remuneration is essential”.

Meanwhile, Postigo emphasised that “combined cycles were not originally designed to function as they currently are and as they are projected to in the coming years”. Consequently, this situation will demand increased maintenance. “In other countries, there is already a reinvestment trend in combined cycles to tailor them to the heightened demands for flexibility and efficiency improvement”, noted the Siemens Energy executive. He also cautioned about “the global bottleneck in this market, necessitating enhanced maintenance predictions for facilities” to minimise the downtime of these generation plants.

The AEPIBAL chairman championed the synergy between batteries and combined cycles to address the system’s needs, affirming that “in the expansion of renewable energy sources, storage is indispensable to ensure reasonable price curves”.