Legal fight threatens new regulation -- Wind lobby risks tariff improvement with stack of amendments

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Spain's bill for a new renewables tariff is in for a rough ride. A hearing by electricity regulator Comisión Nacional de Energía (CNE) was deluged by proposals for major amendments from renewables lobbies and wind-friendly regional governments. If the current government is to maintain credibility on its long-held promise for a new tariff model -- already a year overdue -- it will have to push it through before next month's general election, a daunting task in light of the pile of requests for substantial amendments.

The bill proposes three different methods for fixing prices paid for wind power which must, according to Spain's 1997 Electricity Sector Law (ESL), lie in a range of 80-90% of the average price of all electricity (Windpower Monthly, January 2004).

Legal implications cloud the likelihood of a swift resolution of the current furore over the bill. As well as proffering a long list of economic amendments, renewables lobby group Asociación de Productores de Energías Renovables (APPA) claims the bill flouts the 1997 law. As well as setting the 80-90% framework, the law states that renewables production must be prioritised, that payment must be linked to the hourly electricity market rate, and that plant operators are entitled to extra earnings if they provide services which help grid stability. Not one of the bill's three pricing methods, which plant operators are free to choose between, meets all three conditions," says APPA's Manuel de Delás.

Tweak not change

For APPA, the existing choice of two tariff mechanisms, in force since 1999, provides a working example of the three requirements combined. It would prefer to see modification of the these two options, rather than the complete overhaul proposed.

Since 1999, nearly all wind producers have clung to a tariff option linked to market prices, which obliges the system operator to buy all priority-classified wind power for an average pool price, topped up by a production incentive payment. Both this option, and a less popular fixed-tariff alternative for purchase of prioritised wind power, offer extra earnings from provision of grid services, such as voltage and reactive power control.

The new bill keeps the fixed-tariff option for priority wind, but excludes the bonus for grid services -- contrary to earlier industry understanding of the bill gained from the government's verbal brief in December, says APPA. Under a second option, renewables producers must schedule and sell production on the power pool, but can top-up earnings with a subsidy at 40% of the average pool price. A bonus for aiding grid stability is included in this option, says Delás, but without a priority power classification, there is no guarantee of a purchaser.

A third alternative is the "transitory option," a revised version of the existing model for priority power, but without a bonus for grid services and with a requirement that wind plant operators choosing this option stick with it to 2010. Delás doubts the fair-trading legal basis of "such stringent irrevocability."

One of the bill's most startling clauses is that penalties for deviations from scheduled production not only apply to the market option but also to the fixed tariff and "transitory" alternatives. Wind industry group Plataforma Eólica Empresarial (PEE) joins APPA in slating the penalties as "contradictory to the principle of prioritised production." It suggests, however, that the infliction of the penalties on wind may have been by accident rather than design.

PEE has been more supportive of the bill than APPA, pointing out that the new fixed tariff option sets purchase prices for the lifetime of a wind plant. No long term guarantee existed in Spain before and PEE hails the proposal as "bringing certainty and stability to Spain's wind sector." Nonetheless, the bulk of PEE's submission to CNE's hearing requests amendments it says are "vital" to economic viability.

Hard economics

PEE's demands largely echo APPA's. Both want programming of the fixed tariff option to kick-in from the new bill's enforcement, rather than it being applied retroactively as proposed. Retroactive application would immediately slash earnings from 90% to 85% of electricity market prices for wind plants that have operated for five years or more. Both associations also demand rights to earnings from the provision of grid services within the fixed-tariff and "transitional" options. They agree that, under the market option, the 40% production incentive is not enough to make power pool trading of wind financially viable if it is exposed to market punishment for deviation from scheduled production.

PEE's José Galindez is optimistic that a compromise will be reached "The [economy] ministry is extremely receptive to our modifications and eager to fine-tune the draft," he says. But veteran developer Tomás Andueza of Desarrollos Eólicos SA fears that legal threats could force the government to drop its proposed model entirely: "Then we would all miss out on clear attempt to provide a stable long-term economic framework."

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