The decree effectively forces Spain's existing 22.6GW of wind power capacity out of the wholesale wind market and back into a protected fixed feed-in tariff (FIT).
From 2007 to the end of 2012, more than 80% of Spain's installed wind capacity has operated on the wholesale market, where it receives the going market price for power plus a special production incentive.
The wholesale market production incentive stood at EUR 20/MWh in 2011 and 2012. The most a wind generator could earn last year from this combined with the varying wholesale price was EUR 94/MWh. But the February decree sets the production incentive to EUR 0/MWh, scrapping the incentive in all but name and making the wholesale market route unviable.
The government has also altered the way it calculates the FIT. Instead of sticking to the Consumer Price Index — currently at 3.5% — the government has switched to the obscure "underlying inflation index" - currently at 0.47% — which excludes fuels and non-perishable goods.
Wind "like shoes and tables"
This means wind-power prices are not inflation-linked to energy prices "but rather to shoes and tables", pointed out Heikki Willstedt, policy director at national wind association AEE. This makes the FIT EUR 81.24/MWh compared to EUR 81.27/MWh in 2012.
The cash-strapped government's objective is to cut unpredictable costs in order to slash a EUR 24 billion deficit across the electricity sector. The shortfall was caused by a law in force from 1998 to 2010 to prevent utilities from recouping any generation costs that rose above inflation through electricity billing.
The decree is the "final death blow" for the country's once thriving wind market, said AEE. It calculates that the rules, combined with a 7% generation tax introduced last year, will lose the sector more than EUR 6 billion to 2020 and will force operators to default on finance. AEE, joined by several regional governments, has promised to use all legal means to stop the new regulation.
"This is most emphatically not just a Spanish problem," said Willstedt. "If a major economy like Spain can backtrack on rules governing over EUR24 billion of investments already made, then any other country can, whenever cash gets tight. That can only increase the cost of financing elsewhere, he added. The European Union simply cannot allow this to happen."
Rocio Sicre, managing director of energy company EDP Renewables in Spain, as well as AEE president, described the decree as "dictatorial". She threatened to take the government to court if it is not withdrawn.
Target out of reach
Meanwhile, the decree has not established any rules for new wind capacity in Spain to replace the previous payment system for wind that expired at the end of 2012. EU renewables objectives oblige Spanish wind capacity to reach more than 35GW by 2020 from 22.8GW at present.
"Very few projects could be viable on the wholesale market without support; wind resources at remaining sites just aren't strong enough," Willstedt warned. "Even in the best case of 100MW a year going forward, that's way off target," he added. Spain needs 1.6GW a year of new wind capacity to meet its EU commitment. "If Brussels is serious that its 2020 targets are binding, it simply must intervene," said Willstedt.
"We have very minimal expectations now for installations in Spain for the next three years," confided one major global wind consultancy firm, not prepared to go public on its comment until it officially completes its market review.
Magnus Dale, an analyst at consultancy IHS Emerging Energy Research, said: "It's very likely we'll further decrease our capacity outlook for Spain when we release our 2013 spring forecast."
IHS had previously predicted new government policy would enable up to 800MW of new capacity to go forward annually.
Regions considering appeal
Meanwhile, Spain's autonomous regions have 10GW of planned wind capacity waiting in the sidelines. So far, four of those regional governments — Galica, Catalonia, Andalucia and the Canary Islands — have said they are considering appealing the decree.
Galicia is run by the same conservative Popular Party (PP) as the central government. Such internal party rebellion fuels the sector's hope of a change of government before the current legislature expires in November 2015. Those chances are enhanced by an avalanche of corruption accusations implicating leading PP figures.