Spain at a standstill

SPAIN: New legislation has left one of wind power's biggest and most successful markets in a state of complete paralysis, with some Spanish developers seriously considering dismantling their projects and selling the turbines on the second-hand market.

Warning bells… New law’s retroactive measures are resulting in developers suing the Spanish government (pic: Iberdrola)
Warning bells… New law’s retroactive measures are resulting in developers suing the Spanish government (pic: Iberdrola)

On 9 June the Spanish government rubberstamped its austere and retroactive regulation, slashing income for all existing renewables technologies and ending support mechanisms for new capacity. As a result, the national wind-power market entered a stage of full paralysis, according to practically all speakers at Spanish wind energy association AEE's annual convention, held the following day in Madrid.

AEE president Jose Lopez-Tafall confirmed his organisation will join renewables association APPA in fighting the regulation "with all legal means available, both at home and before the European Commission". The regional governments of Murcia, Catalonia, Andalusia and Extremadura have already appealed against the regulation as anti-constitutional.

The developers behind Spain's 23GW of total wind capacity, which have made the country the fourth-biggest wind market in the world — after China, the US and Germany — are now focused entirely on exports. "Right now, we are more British, American and Mexican than Spanish," said Ignacio Galan, chairman of utility Iberdrola, the world's biggest wind operator for the best part of the past decade. Roberto Deambrogio, head of Europe at Italian utility Enel, said his firm has put all projects in Spain on hold. Iberdrola business development director, Jose Oriol, said he did do not expect any wind market action in Spain for the next five years.

In the grips of recession, Spain's electricity demand is at 2005 levels. With peak demand at 45.5GW last year, according to grid operator REE, and more than 100GW installed capacity from all technologies nationwide, Spain now has far more generating capacity than it needs. The industry ministry does not expect any new capacity from any technology until 2017 at the earliest.


Capacity already online is also in danger because of the regulation's retroactive impact. The cuts will cost operators of existing wind projects just under EUR 608 million in 2014 alone, according to an analysis of the draft by the energy regulator; but according to APPA this figure is closer to EUR 1 billion.

Since the regulation's draft in January there have been mounting rumours of operators planning to rip out turbines from existing sites in Spain to sell them to more lucrative markets abroad. "There are clients we are talking to about this possibility," confirmed Fernando Ibanez, customer relations manager at Spanish turbine maker Gamesa. Luis Lombana, who heads the Spanish division of used-turbine supplier Windbrokers, confirmed advanced talks over recent months to uproot around 60MW. "But it's too early to know if this marks a significant trend," he says. Indeed, until June's rubber stamp, nobody knew for sure the regulation conditions, said AEE director general Luis Polo. This is also the reason why negotiations with banks for refinancing loans were only just beginning in mid-June.

Another business opportunity gleaned from Spain's demise is in operations-and-maintenance services, to squeeze as much power as possible from turbines. Gamesa is the first to launch a service to extend life from the 20-year standard to up to 30 years while promising up to 98% turbine availability.

The author of the new regulation, industry minister Jose Manuel Soria, was scheduled to inaugurate the AEE convention. His drafting of the document, without consultation with the sector, was described as "incomprehensible, given wind is now Spain's top power generator", by Lopez-Tafall. Soria failed to show up.

In April the government similarly declined to send a representative to pick up the European Wind Energy Association (EWEA) award for Spain's achievement in 2013 of becoming the first country in the world to produce more power from wind during a full year than from any other source

Such snubs underline the wind sector's belief that the regulation is a broadside attack by the governing right-wing People's Party (PP), intent on committing Spain to oil, gas and nuclear energy. Many see the law also as a political backlash against the 2004-2011 period of the PSOE socialist party government, under which wind capacity grew from around 8GW to 21GW.

The PSOE has vowed to annul the new law if returned to office in the next general election, to be held November 2015 at the latest. That could well be the wind sector's best hope, as no national or EU court is expected to act before that. Polls suggest, however, the election result is in the balance.

Devil in the details

The new regulation gives details on the PP's reform law, passed in July 2013. The law ended the power price-support mechanism — a feed-in tariff and alternative production incentive — that had been driving Spanish renewables since 1999. New renewables capacity must now compete in the power market without any support.

But it is the far-reaching retroactive measures for existing capacity that are bringing a barrage of law suits against the government. The regulation applies a "reasonable profit" standard, set at 7.5%, pre-tax, across the useful life of all existing renewables plants, in contrast to the double figures attained by older wind farms. Useful life officially remains at 20 years, as under previous regulations.

The 8.4GW of wind online in Spain before 2005 — 37% of today's cumulative total — has already exceeded the regulation's "reasonable profit" figure, and will only receive the wholesale electricity market price.

This is totally unfair, says AEE. Polo points out that investors in that capacity — built when wind was still considered high risk — were lured onboard by promises from the highest possible guarantor: the state itself. In successive regulations since 1999, the state guaranteed feed-in tariffs and production incentives would remain in place throughout useful life. Breaking that promise sets a very dangerous precedent, warned Justin Wilkes, EWEA deputy CEO. "The Spanish government now has a hard job to convince investors that Spain is still worth investing in," he told convention delegates in June.

For younger capacity, the regulation subsidises investment costs. Dubbed the "installed capacity subsidy", it is paid in monthly instalments additional to the price achieved on the electricity market (currently at EUR42/MWh). To calculate costs — and so the subsidy — the regulation has determined 1,662 standard renewables and combined heat and power (CHP) plant types, including 23 wind-farm types. "It is hugely complex in its design, fails to reflect real-life costs and just makes no sense," said APPA technical director Jose Maria Moya. "Why, for instance, define 23 types out of the 1,352 wind plants online, yet 806 CHP plant types out of the 983 online?"

Worse, the regulation "subsidises inefficiency", says Moya. "It's simple maths. By subsidising capacity, the more a turbine produces in a year, the lower the payment per megawatt hour." Moya contrasts hourly payments under the new regulation with 2013's feed-in tariff, which paid EUR 81.25/MWh (see chart, below). Under the new regulation, no wind project with a 34% capacity factor (an annual production equivalent to 3,000 hours at full capacity) will reach EUR 81.25/MWh. Yet projects with a 25% capacity factor (2,200 hours annually), installed after 2007, will all top the old feed-in tariff.

In lieu of a change to the regulation, further wind generation growth in Spain depends on the European interconnector project, says Peter Sweatman, CEO of Climate Strategy consultants. He points to the EU's EUR 33 billion interconnector funding, part of which will boost Spain's interconnection capacity with France — which now has a power deficit — to 10% of installed capacity, up from 1.5% today.

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