Analysis - Bleak prospects for Spanish projects as developers consider EU battle

SPAIN: Developers may be forced to appeal to the EU over the Spanish government's latest round of retroactive subsidy cuts, which threaten to choke the remaining 450MW of projects in its pipeline of any finance.

Last month, the government passed an emergency Royal Decree-Law (RDL) that slashed the wholesale market production incentive from EUR 20/MWh to EUR 0/MWh. Combined with last December's 7% tax clamped on all generation income and the lowering of the Feed-in tariff (FIT), the wind sector stands to accumulate losses of up to €6 billion to 2020, said wind association Asociación Empresarial Eólia (AEE).

Of 850MW of capacity allocated price support in 2011, operators of 400MW have abandoned projects, according to AEE, and there are now doubts over how much of the remaining 450MW will go ahead.

"Given the increasingly shaky foundations for investors, it is not clear how much finance will be mustered for even the remaining 450MW," an AEE spokesman told Windpower Monthly.

Developers of the remaining projects are generally reticent, though Acciona says it has until June 2014 to commission its 9MW Vilobi II project in Catalonia. Italian utility Enel also confirms the government conceded a deadline extension for its 36MW Angosturas development in Malaga.

Back to FIT

The RDL effectively forced Spain's existing 22.7GW of wind power capacity out of the wholesale wind market and back into the 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 decree effectively forces operators back into the existing FIT option, which has also been lowered by the government. Instead of sticking to the Consumer Price Index — currently at 3.5% — to calculate the FIT, the government has switched to the obscure "underlying inflation index" - currently at 0.47% — which excludes fuels and non-perishable goods. This means wind-power prices are not inflation-linked to energy prices "but rather to shoes and tables", said Heikki Willstedt, policy director at AEE. This makes the FIT EUR 81.24/MWh compared to EUR 81.27/MWh in 2012.

The RDL, devised with no electricity sector consultation, has been described as "illegal" and "dictatorial" by Rocio Sicre, both AEE president and managing director of Portuguese developer EDP Renováveis in Spain.

However, the chances of successfully challenging the changes within the country’s own legal system seem slim, as an RDL can only be appealed on anti-constitutional grounds.

Apart from the prime minister, only three bodies can appeal to the constitutional courts: the ombudsperson, one of Spain's 17 regional governments or a group of 50 MPs. Meanwhile, the PP conservative Popular Party (PP) government has an absolute majority and a mandate to November 2015, effectively precluding a parliamentary repeal before then.

Developers say AEE is pushing for the five non-PP regional governments to appeal. AEE merely confirms it is "studying options". Still, it is adamant the decree breaks the legally binding promises that attracted long-term wind investments. AEE also cites the 1997 electricity sector law, which demands both reasonable returns on investment and consultation with renewables sectors in establishing renewables pay systems.

Regardless of who makes the appeal, AEE members say the complex route through the constitutional court is unlikely to produce a verdict before 2016.

Opting for a quicker route, EDPR, which is a major developer and wind operator in Spain, is preparing to drag the Spanish government before the EU courts, according to leaks to the press. EDPR is reportedly citing EU laws of investor security. The company declined to comment on the reports.

Willstedt, meanwhile, said he believed an EU intervention might be made on the grounds of Spain’s 2020 renewables targets.

Even if all of the 450MW planned capacity is realised before the final deadline of 2014, the figure is only a seventh of the 3.5GW Spain achieved in 2007 alone. Unless the regulation is quashed, AEE says Spain's once roaring wind market will stall miles from its 35.75GW target under the EU's 2020 binding renewables objectives.

"The government now infers it simply expects new projects to operate without [price] support," said Willstedt.

"Even in the best case of 100MW a year going forward, that's still way off target. The EU's renewables directive is binding. Brussels cannot just sit by and let this happen."

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