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Spain

Spain

HIGHER PRICES AND LONGER CONTRACTS

A package of new laws on power production in Spain has been hailed by the wind industry as the much-awaited catalyst needed to get development going in a big way. Premium prices have been hiked for alternative energy projects of under 100 MW and contracts fixed for five years, giving banks and other lenders greater guarantees on loans. The measures also include an "adios" to new nuclear power plants.

Encapsulated in a Royal Decree published December 9, the legislation also applies to other alternative energy production, including solar, mini-hydro, biomass and cogeneration. Payment for wind power -- categorised as group A -- has been raised from about ESP 10/kW to around ESP 11.57/kWh, a 20% increase. Some developers believe efficient management could increase the price to ESP 12.57/kWh, depending on individual deals negotiated with distributors. The law does not affect previous legislation which guarantees connection to the grid for renewable power producers.

According to Manuel Lara, the managing director of Gestenga, a company run by the regional government of Galicia in northwestern Spain to promote alternative energy systems, the best news is that contracts will run for five years. Until now, the uncertainty of power prices constituted a major stumbling block for developers, he says.

According to the decree's preamble, the logic behind the price hike is based on the argument that sources such as wind power have a reduced impact on the environment all the way from wind farm to customer.

The package of laws also weakens the hold which Spain's utilities have on the grid, by separating the businesses of electricity generation and electricity distribution. Grid operators must now set up independent companies exclusively dedicated to distribution. Another key element of the package is Spain's moratorium on the building of nuclear power plants, introduced a few years ago following popular demand. The law puts an end to the construction of all new nuclear capacity -- and existing nuclear plant will be phased out as they reach retirement.

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