Under the new agreement the 35% cut in the production incentive paid to wind power producers, in addition to the wholesale electricity market price, will be temporary.
As soon as the regulation is rubber stamped, the cuts will apply only to capacity online from January 1, 2008—around 25% of Spain’s 9.4GW total—and will run until the last day of 2012. After that, the ministry promises a return to current rates for existing capacity. Industry Minister Sebastian previously wanted to close the negotiations in June, so the sector expects the rubber stamp in the next few days.
"Following our collaboration and efforts in meeting ministry’s cost cutting demands, we have accepted a temporary reduction in the incentive in return for the long-term market stability we were looking for," the national wind association, Asociación Emprarial Eólica (AEE), told Windpower Monthly.
The reaction across the sector is one of disgruntled relief because the cuts apply retroactively, undoing previous promises to wind investors. Specifically, the incentive reduction applies to capacity online under a 2007 regulation that guaranteed the existing incentive for 20 years.
Nevertheless, there is more relief. The pact has ended a sixth-month freeze both in new investments and finance deals, due to the uncertainty regarding the long-term future of wind power incentives. In the first bourse session following the pact, the stock market closed with a sharp upturn in renewables shares, reversing a six-month downward trend.
Iberdrola Renovables, the world and Spain’s top wind operator, saw its shares value rise 7% on the close of the first day after the agreement. Shares in fellow Spanish wind giant, Acciona, rose 4%.
Another cause for relief is that capacity up and running before 2008 is not affected. Furthermore, a regulation for new capacity connected after 2012 is yet to be drafted though industry minister Miguel Sebastian has promised "stability and reasonable profits".
Other minor aspects of the agreement include the ministry’s promise to make a call for proposals to build 160MW of special demonstration and experimental wind projects, in a bid to boost sector R&D. That call is in addition to the 6.4GW national wind project building allocation made last year, covering 2009-2012, inclusive.
Furthermore, the ministry has resolved the case of 300MW of capacity in limbo since last year. This was already installed before the allocation law was introduced in May 2009 but it did not get included when capacity was allocated in November that year.
Accordingly, the 300MW had remained at a standstill. Now, it will be able to charge the going wholesale electricity market price for production up to January 2012. After that, it can opt for a yet to be announced fixed tariff. Alternatively, it can wait a year longer and opt for the market production incentive instead as of 2013.
Meanwhile, the pact caps the volume of wind plant generation eligible for the production incentive. The limit is set at 30% of nominal production. The average capacity factor for Spanish wind plants is around 27%, and will therefore not be affected.
Indeed, one AEE developer member confided "the agreement will have very little impact on wind generation earnings. "But it has changed rules for capacity already online which attracted investors on the basis of pay schemes guaranteed for 20 years. To meddle with investor guarantees is to lose credibility, a dangerous precedent," he said.