This was introduced in a wind power pay scheme rubber-stamped by the government in December. The sector has also criticised the document as too near-sighted to reverse the current trend for the Spanish industry to seek opportunities abroad.
The pay scheme, which will apply up to 2012, mainly adheres to an agreement signed with the national wind association, Asociacion Empresarial Eolica (AEE) in the summer (Windpower Monthly, September 2010). AEE says that it did not agree to a capacity factor cap. But from January all wind plants will receive incentives only for the equivalent of the first 2,590 hours of annual production at full capacity.
This figure translates to a capacity factor of 29.57%. A capacity factor is the percentage of stated nameplate capacity that a wind farm or turbine actually delivers over the course of a year.
The cap penalises improvements in turbine efficiency, argues AEE. Industry players say that its retroactive application undermines investor security. But Antonio Hernandez, director general of the industry ministry's energy and mining policy, says the cap is reasonable. It will only apply if the average national wind capacity factor is above 28.54% in a given year (2,300 hours nominal production annually). "That ensures reasonable profits for the sector and the other side, the consumer," he says.
While criticising the capacity factor cap, AEE describes the regulation as a step forward and an end to previous concerns about sweeping retroactive cuts to production incentives.
The only cut introduced by the new regulation matches the July agreement. This is a temporary 35% reduction in the EUR38/MWh production incentive paid to wind generation in addition to the price it receives on the wholesale electricity market. The cut applies until January 1, 2013, and is applicable only to capacity online after December 31, 2007. This is equivalent to roughly 20% of the current 21GW total.
The cut is also largely hypothetical, as the incentive only comes into play if the wholesale market price rises above EUR45/MWh. If it remains below that figure - which has been the case throughout 2010 and is expected to be so throughout most of 2011 - then wind power receives a guaranteed minimum price of EUR74.1/MWh.
The industry's main gripe remains the lack of long-term visibility. The regulation only affects capacity already online or projects on the national pre-allocation register, which controls and schedules connection of new projects to end-2012.
The government has given no indication of a pay scheme for new capacity after that date, despite a ruling requiring this by end 2010. "Developing a wind project to completion requires seven or eight years, not two or three; we need longer-term visibility to keep investors on board," says AEE president Jose Donoso.
Some developers have expressed fears that Spain's cash-strapped government, tackling a EUR25 billion deficit across the electricity system, has merely protected investments in the country's 23GW combined wind capacity already operating or licensed to 2012. "It doesn't care about post-2012, only the short-term task of avoiding national bankruptcy," says one developer. "In the meantime, the industry is fleeing abroad," he adds, referring to the estimated 10,000 wind sector job losses and factory closures in Spain since 2009.
Meanwhile, Spain has ratified its commitment to the European Commission to meet 20% of its energy consumption with renewables and has formally promised to reach 38GW of wind capacity by 2020.
While Hernandez argues that commitment provides guarantees to investors, the wind industry is voting with its feet, says the AEE. To mitigate the exodus, it is pressing for urgent negotiations with the government on the new regulation for future capacity.