Spain braces for bounce back

SPAIN: Europe's second-biggest wind market prepares for a comeback as developers work out details for the 4.6GW of wind capacity allocated in recent auctions.

Legacy… Spain is still the second-biggest market by installed capacity in Europe and home to leading wind players, but many of these now focus on global business (pic: Iberdrola)
Legacy… Spain is still the second-biggest market by installed capacity in Europe and home to leading wind players, but many of these now focus on global business (pic: Iberdrola)

Expectations are again high across Spain’s once roaring wind market. After an effective moratorium on new capacity since 2013, activity has snowballed over the past year, spurred on by government wind capacity allocations totalling 4.6GW since 2016.

"In addition to power companies, there are many new main players involved, such as investment funds, with a more financial approach," said Juan Virgilio Márquez, CEO of Spanish wind energy association AEE.

As a result, the market is expected to leap from 23GW of cumulative capacity in 2013 to 28GW by 2020, he added.

In line with annual deployment since 2013, Spain built little more than 50MW of wind capacity in 2017. But there is growing momentum behind the three government power auctions held since 2016, which allocated 9GW of new renewables capacity on the mainland, 4.6GW from wind, all for connection by May 2020.

Just for wind, the first auction, in January 2016, allocated 500MW; the second, in May 2017 returned 2,979MW; the third, last July, added another 1,128MW.

Work is understood to be under way on some of the 500MW allocated in 2015 under pre-2013 subsidy rules as an exception for the Canary Islands.  

New faces

"Negotiation activity between developers and suppliers and financers is frenetic," said Márquez.

There were already thousands of megawatts of mature wind projects in the pipeline before the 2013 freeze, he added."So many of these are now ready to go."

Indeed, from November 2017 to January 2018, utility Gas Natural Fenosa, announced turbine contracts totalling 347MW: an 86MW order with Vestas, 197MW with Nordex, and 64MW with Siemens Gamesa.

These contracts follow a deal for GE to supply 3MW machines to Spanish developer Forestalia’s entire 1.5GW auction allocation, all in the Aragón region, north-east Spain.

Forestalia symbolises the changing face of Spanish wind. The company is built around the agro-food industry rather than energy, yet bagged the lion’s share.

Iberdrola, Spain’s biggest wind-plant owner with 5.6GW online, did not bid strongly enough to win an allocation.

Acciona Energía, the second biggest, with 4.7GW, did not even bid. Both companies have said that as global operations they are focusing on markets that better suit them.

Still, some major wind-player utilities secured allocations. As well as Gas Natural Fenosa’s 667MW, Italy’s Enel Green Power landed 540MW. The development division of Gamesa secured 206MW.

Other stalwarts are sneaking in through the back door. In January, GE joined forces with Mirova-Eurofideme 3, a fund for renewable-energy investors that is owned by French bank Banque Populaire Caisse d’Epargne, later acquiring 300MW of Forestalia’s 1.5GW allocation.

Smaller developers hold nearly 1.6GW among them. Whether they sell to larger companies remains to be seen.

Purely in terms of wind-generation income, the auctions offer little. In their bidding, successful developers all put forward a 100% discount on the subsidy offered against wind plant investment costs. The only support left in place was a floor on production earnings, set at €22-28/MWh.

Wholesale electricity prices averaged around €60/MWh last year, so financers are not too concerned about prices plummeting, at least in the medium term.

What they are demanding are long-term power purchase agreements (PPAs), a mechanism new to Spanish wind.

Finance costs are lower than five years ago, but banks are still wary of leveraging with finance above 50% (far from the 80% leverage typical pre-2008). "PPAs really help clinch that deal," Márquez said.

Central and regional governments are also streamlining administrative processing for auction-allocated projects, adding confidence to the financiers.

Short on detail

Despite the activity, many details remain under wraps. The auctions did not involve bids for actual projects but for the capacity the companies aim to install. Developers simply have not finalised projects yet.

Rules for the May and July 2017 auctions require specific projects to be identified by the end of February or April this year.

"So there has been a matchmaking rush between those holding capacity rights and those holding mature developing rights," said AEE technical adviser Alberto Ceña.

Assurance of final matchmaking rests in a €20,000 deposit for each megawatt allocated. Projects from the 2016 auction do not need to specify sites, but all 500MW allocated must be connected by end-2019.

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