Regulatory reforms taken to court -- Uproar in Galicia

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Outraged project developers in Spain's mighty wind region of Galicia say that sweeping regulatory reforms proposed by government have put an estimated EUR 3.9 billion of investment in 3500 MW of development at risk. The existing regulation, introduced in 1995 by the then Conservative-led regional government, or Xunta, has brought over 2600 MW online, making Galicia, a region the size of Sicily, the world's sixth largest wind market after Germany, the United States, Denmark, India and the rest of Spain.

The regulatory revision, drafted by the Labour coalition government elected in 2005, will not only stunt growth but is also on legally shaky ground, says the Galician Wind Association (EGA), which has appealed to the regional supreme court to block the reforms. The proposal slaps a limit on the wind capacity that any single company can own, bans wind turbines with capacity ratings of less 1.8 MW, and rules that 10% of all new wind plant must be passed into public ownership.

Positive side

On the positive side, the proposal, drafted without consulting EGA, raises the regional wind target from 3.5 GW in 2010 to 6.5 GW in 2012 and commits the Xunta to processing 2330 MW of new capacity by 2010. "But the proposed methods contravene basic principles of fair trading and are counterproductive," says EGA secretary general Iñigo Muniozgurren.

Xunta vice president Anxo Quintana says the new model, "Ensures Galicians are the first to benefit from power produced in Galicia, rather than others profiting at our cost." His point is that most of the wind plant in the region are operated by non-Galician companies. Owners include national utilities Endesa and Iberdrola, together with other wind majors like Madrid-based Acciona, Eyra and Enerfin and Portuguese utility EDP.

Muniozgurren argues that the existing market framework has brought major socio-economic benefits to Galicia, more than anywhere else in Spain and perhaps the world. The 1995 regulation carved up the region into broad wind prospecting areas. It immediately doled out 3500 MW of exclusive development rights in each area to a dozen or so development entities. The Xunta also enforced a 70% local content obligation linked to development, resulting in the creation of over 5500 direct and indirect jobs, by EGA figures. Many of those jobs are in regional wind turbine assembly facilities run by Spanish companies Gamesa, Ecotècnia and Navantia -- the Spanish producer of Siemens turbine technology -- and Denmark's Vestas. Gamesa and LM Glasfiber of Denmark also operate blade facilities in Galicia.

Legally dubious

Under the new draft regulation, the government will periodically request bids for new wind development proposals for different geographical zones. Paradoxically, for a regulation aiming at local spin-offs, it removes the local content requirement, though a points system for evaluating projects will take local content into account, together with environmental and energy efficiency factors.

In future, regional benefits are to be secured by insisting on a 10% public ownership stake in each new wind plant. From initial meetings, EGA believes this 10% is expected to be a gift from each project's sponsor. "We have nothing against the Xunta investing in wind. But we're totally against an enforced stake by decree and, to top it all, for free," says Muniozgurren. "They are both very legally dubious aspects in terms of fair play. We'll see what the courts think."

Furthermore, the 10% Xunta ownership is a minimum requirement. The new rules state the public stake offered by developers will be evaluated as part of the project licensing process. "With projects set to compete for the same area, that can only lead to an upward spiral in the public stake surrendered," says Muniozgurren.

Barriers raised

Meanwhile, for the developers and turbine manufacturers not part of the Galicia bonanza to date, the new opportunities are grounds for rejoicing. Galicia's power grid is notoriously weak, however. According to EGA, the exclusive zone concessions have enabled developers to carry out long term planning of infrastructure, pooling resources to finance costly new power lines for new wind plant planned years down the line. "That's helped make Galicia the leading wind market it is today," says Muniozgurren. "How on earth are competing piecemeal developments going to sort out infrastructures for the thousands of megawatts to come?" he asks.

EGA is perhaps even more concerned about the Xunta's proposal to limit ownership of wind plant by any single company to 20% of all installed capacity in Galicia. "That totally contravenes electricity sector liberalisation rules and interferes with the business trend towards concentration," says Muniozgurren. It will also impede long established regional operators, with deep knowledge of both the terrain and wind resources, from developing new capacity. Endesa, hoping to build a further 500 MW in Galicia, is already close to the 20% mark with direct ownership in over 500 MW. Acciona is just behind with a controlling stake in nearly 450 MW.

From the Xunta, Quintana says the reforms also aim to produce "increased harmony between wind installation and the environment." To limit the number of turbines, the minimum rated capacity allowed will be 1.8 MW. Muniozgurren points out that the largest machine made by Ecotècnia, with a factory in the region, is 1.67 MW. "You can't attract a company with one regulation and then turn it away with another," he says.


So far the Xunta is turning "a deaf ear" to EGA's complaints, says Muniozgurren. That point was recently demonstrated by the head of Galicia's industry department, Anxo Calvo, when he proclaimed: "The Xunta makes policy in Galicia, not the companies."

Endesa, meanwhile, has voted with its feet using a loophole. Under Spain's former national wind law, only developments of 50 MW or less were eligible for the full production incentive paid for wind generation. For bigger projects, like Endesa's 250 MW As Pontes-Muras complex turning in Galicia, applications were split into smaller lots, each within the 50 MW limit. Under Spain's new wind law, however, which came into force last month (page 27), the 50 MW cap is removed. The significance of that decision lies in a 1997 law, which took authority for granting building permits for wind farms of that size away from the regions and passed to central government.

Endesa has acted accordingly. It is blazing a new trail through Spanish red tape by regrouping its 500 MW into several large projects and applying for licences from the central industry ministry. If EGA's court appeal fails, more large developers might follow suite, putting large scale wind development out of the Galician Xunta's control.

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