Spain Is a Case Study in How Not to Foster Renewables

Spain’s renewable interests have labelled recent Spanish energy policy moves as a “case study in what not to do” following a new cut in subsidies.

José María González Moya, chief executive of the Spanish renewable energy business association (APPA) said, “Spain used to be a leader. Now the problem with Spain is that you don’t know what they will do after tomorrow. It’s a disincentive.”

APPA last month launched a legal challenge against a government review of plant remuneration rates that the association said will cost Spanish renewable energy investors more than €600 million ($657 million) in lost revenues over the next three years.

As the basis for its rate calculations the Spanish Ministry for Energy, Tourism and Digital Agenda used a future energy price that is 25 percent higher than its own estimates elsewhere, according to APPA.

The discrepancy is important because the price of electricity is one of the factors that the government uses to assess what it calls the “reasonable return” of a plant, which forms the basis for renewable energy support after feed-in tariffs were axed in 2013.

“By artificially elevating the electricity price estimate for future years, the Ministry not only compromises future earnings for the sector but also … automatically reduces the regulated remuneration forecast for the three years from 2017 to 2019,” said APPA in a press note.

The discrepancy between the €52 ($57)-per-megawatt-hour price used for the renewable industry and the roughly €42 ($46)-per-megawatt-hour level published by the government elsewhere had also been called out by Spain’s electricity market regulator, APPA said.

The renewable energy body claims the Ministry’s dodgy math is just the latest in a long series of regulatory missteps that has seen industry revenues drop an average of 30 percent, leading to 75,000 job losses since 2008, and could deter investors from backing future projects.

Opting not to bother with subsidies

The fact that the remuneration rate is being changed at all is down to a quirk in the current legislation that allows the government to revise its electricity price estimates every three years and review all the calculation parameters — except plant life and initial cost — every six.

Not knowing how much you will get for your money in three years’ time is hardly an incentive for people to invest in renewable energy in Spain, González noted.

So much so, in fact, that when the Spanish government issued its first renewable energy tender in five years in January 2016, the winning bidder opted not to bother with subsidies at all for its 300 megawatts of wind power.

The company, called Forestalia, was a month ago said to be on the verge of securing project loans worth €200 million ($220 million) from lenders including Deutsche Bank and Banco Santander.

The Ministry for Energy, Tourism and Digital Agenda, which did not respond to GTM’s written request for more information, has issued another tender this year, for up to 3 gigawatts of renewable capacity.

APPA last month slammed the auction because winners are to be picked solely on price, with no consideration for the merits of different technologies in a balanced energy mix.

“We're winging it”

Industry sources told GTM they believed the latest tender had nothing to do with energy system planning and was simply an emergency measure to help Spain achieve its European Union 2020 renewable targets at the lowest possible cost.

One said the tender documentation was so vague that it wasn’t even clear that a plant would have to be built in Spain to qualify. A PV plant in North Africa could conceivably win the tender if it was cheap enough, he said.

Ultimately, though, experts worry that the route being taken by the Spanish administration could add to the cost of renewables rather than making them cheaper.

In the current lowest-price-takes-all tender, for example, winners are likely to be either solar plants in the sunny south of the country or wind farms in high-wind regions that have already been exploited by developers.

Either way, the new generation capacity will likely require extra investments in the distribution network so the energy can be taken to where it might be used, such as in Spain’s northern industrial regions.  

Meanwhile, the regulatory uncertainty surrounding any new installations that choose subsidies would likely result in increased project costs as investors hedge against potential future loss of income, González said.

“We’re winging it when it comes to energy,” he said. “All we ask is for the government to stop improvising.”

from GTM Solar https://www.greentechmedia.com/articles/read/spain-is-a-case-study-in-how-not-to-foster-renewables

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