Two tariff options

The law governing Spain's two renewables tariffs -- Decree 2818 of December 1998 -- is the mainstay of the wind boom, where around 4000 MW of wind generation capacity is now online. Decree 2818 is applicable to plant operators within Spain's "special" electricity market, the Regimen Especial (RE). The protected market includes all renewables and cogeneration producers under 50 MW.

The decree establishes two mechanisms for ensuring that RE operators achieve returns of between 80%-90% of the pre-tax consumer price of electricity, as stipulated by 1997's electricity sector law. The first mechanism is an annual guaranteed fixed tariff which remains the same throughout the year. The rate for 2002 is EUR 0.0628/kWh. The second is a market related tariff, paying producers the equivalent of the electricity market or "power pool" price for each kilowatt hour, plus a production incentive, widely referred to in Spain as "la prima" (the premium). The incentive for 2002 is EUR 0.0290/kWh.

Despite the pool related variable, RE producers do not sell their output into the market, but receive payment directly from electricity retailers, who must buy renewables production whether they need it or not. The extra cost of buying RE power is passed on to the consumer in electricity bills.

Both the fixed tariff and the premium rate are adjusted every year by the government, in accordance with market predictions for the coming year, to bring each technology its target returns regardless of which mechanism is chosen. Indeed, operators are allowed to change from one mechanism to another a limited number of times within a given year.

The target price for wind was set at the 90% ceiling at the start of 1999 for a four year period. The target is now up for review under the provisions of Decree 2918, which stipulates that the government must revise prices every four years in accordance with the market performance of each technology. The worst case scenario for wind in the coming revision would be for tariffs to hit the 80% floor for the next four years.

In the case of wind power, pool prices have been high enough over the past couple of years to allow operators a return equivalent to 93% of the consumer price of electricity (main story). For this reason the fixed tariff option has been far less popular than the market-related production incentive.