Top market rolling along but not entirely secure -- Spain sets European record

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Spanish wind power has never had it so good. After pulling off a European all-time best in 2007 by installing 3514 MW in a single year, the country's wind sector looks set to stay in the fast lane in 2008 and beyond. Some major gaps in the road need bridging, however.

Cumulative installed wind capacity reached 15,145 MW at the end of last year, 30% up on the figure for end-2006. The sheer volume of new megawatts, double that of 2006, reflected the industry's knowledge that a revised purchase price structure for 2008 would lower returns on investment for new wind generation coming online after December 31. That made it well worthwhile pushing projects under the wire before the new year, points out Alberto Ceña of national wind association Asociación Empresarial Eólica. From now on Spain needs to install 1700 MW a year, less than half of that achieved in 2007, to meet its official 21 GW target for 2010. "Well within reach," says Ceña.

His confidence is underpinned by positive signals from nearly all sides. The government's confirmation in November of its commitment to setting a new 29 GW wind target this year, as part of an infrastructure plan to 2016, has kept investor confidence high. Energy department officials are also talking of a 40 GW expectation for the following decade. At the same time, large new geographical regions are fast opening up to more development, supported by new or extended turbine production capacity.

The fly in the ointment is an increasingly bullish nuclear lobby, clearly inspired by Britain's recent commitment to new reactors. Pushing to reopen debate on whether to end Spain's 24-year old nuclear moratorium is the opposition Conservative party, Partido Popular, which hopes to be returned to power in this month's general election.

The threat of nuclear competition aside, support for renewables runs across the political divide, providing hope for rapid adoption of the 29 GW wind target by whoever wins the election. It is crucial for maintaining market momentum. By the end of this year, Spain will be close to 85% of the existing 20.1 GW target. Under the new wind regulation in force this year, no new projects are eligible for subsidies until a new official target is set. That leaves the industry spending its time completing all projects already approved. Failure to agree the new target is "an inconceivable scenario," says Ceña. Spain has to raise its renewables generation from 8.7% to 20% under the EU's proposed renewables directive and wind is the only large scale technology available for the job.

Lower prices

The wind industry has come to terms with the 23% cut in wind's purchase price subsidy from EUR 38/MWh last year to EUR 29.29/MWh from January 1, though for existing plant a transitional period at the old rate continues through 2012. The subsidy is index linked and each year wind plant owners can choose whether to sell their output on the wholesale market and receive the subsidy, or to sign up for a standard offer power purchase contract at a fixed price. In 2007, 97% of wind power was traded on the market.

The government compensated for the subsidy reduction by promising a minimum purchase price of EUR 73/MWh, including sales price and subsidy, should market prices nosedive. Again, it is index linked. "The cut is one thing, but the banks are pleased with the new regulation's safety net," says Ceña. The standard offer purchase price was also raised to EUR 73.23/MWh from EUR 68.93/MWh.

Had the new regulation applied to wind generation last year, average purchase prices would have been EUR 74.3/MWh, compared with the EUR 77.62/MWh achieved. As a result, the standard offer option no longer looked like such a bad deal and 10% of wind generation had moved to fixed price support by December. But that was the end of the trend. Soaring wholesale electricity prices, rising to an average of EUR 70/MWh, EUR 30/MWh above the 2007 price, stopped the move to standard offer contracts. Low hydro reserves and the rising cost of carbon mitigation contributed to the price hike. Wind generation from existing plant has been raking in as much as EUR 108/MWh on the wholesale market, according to AEE. But for new generation online from January 1, a price cap of EUR 87/MWh applies.

The downside of the profiteering is that subsidy rates are to be reviewed in 2009 and state energy secretary Ignasi Nieto is already talking about cutting them. He notes that in Germany statutory purchase prices for wind power are reduced annually on a fixed scale with new wind generation being paid less each year. Ceña is not unduly concerned. To meet its renewables targets, Spain has to maintain wind power as an attractive investment, he points out.

Higher targets

Most of Spain's regional governments have already raised their wind power targets to enable them to meet the EU's 20% renewables target. Galicia in the north, Spain's leading wind power region until last year, has raised its target from 3500 MW for 2010, to 6500 MW for 2012. Whether that will enable it to once again resume pole position ahead of Castile-La Mancha in central Spain remains to be seen. Galicia at 2952 MW was overtaken when Castile-La Mancha hit 3131 MW by the end of 2007, a lead that may not last for long. Wind power is fast consuming the region's available grid capacity.

The highest growth last year, 140%, was notched up by the vast region of Andalucía in the far south. After steadily planning new capacity and building extensive and dedicated power lines for over half a decade, it saw development of 835 MW to reach 1444 MW. "We expect 1000-1200 MW of new capacity over 2008," says Carlos Rojo of the Andalucian wind association. That puts the region on track to reach its former 4 GW target for 2010. Last year, the regional government set a new wind target of 4800 MW to 2013.

On the east coast, Valencia had expected to reach its 2300 MW wind target by 2008 after doling out development concessions to companies in 2003, but at just 600 MW it is way behind schedule. Delays in getting transmission capacity built are to blame, but with over 250 MW up last year, the region is coming up to speed.

Lack of transmission has also been holding back development in Catalonia, where 3000 MW of approved projects have been at a standstill for over five years. Three lines to connect 700 MW are now being built in and around the province of Tarragona, says local developer Ramón Carbonell. Extremadura, which has yet to see any wind development, and the pioneering Canary Islands are both currently finalising the selection process on public tenders to build 3700 MW and 1000 MW, respectively, by 2012.

Moving at a much faster pace is Castile and León. But yet again, with 700 MW connected last year, available grid space is fast disappearing. The local wind association has made an urgent appeal to grid operator REE to approve further grid reinforcement contracts, funded by developers, to provide network capacity for generation from a 3 GW backlog of authorised projects. As in other regions, official approval of the 29 GW target would help persuade REE that it must persist in its efforts to integrate ever larger amounts of wind power without putting security of supply at risk.

New manufacturers

With turbine supplies for much of the coming development already secure, little has changed on the Spanish manufacturing scene. Gamesa continues to dominate the market, installing 47.5% of all new capacity last year, though it has had to give way somewhat as Vestas, followed closely by Acciona, both moved up to nearly 20% each.

Newcomer Eozen, which assembles a direct drive turbine under license from Germany's Vensys, started up Andalucía's first turbine facility last year (Windpower Monthly, September 2007) and India's Suzlon opened offices in Madrid. It has since landed three contracts totalling 180 MW and does not discard the option of a factory in Spain. Germany's Siemens declines to comment on rumours of a planned factory in Andalucía. For the first time, however, the company went over the head of its Spanish licensee, Navantia, last year to sell 2.3 MW turbines directly into Spain, including 77 MW in Navantia's home region of Galicia. Meanwhile, Navantia is rumoured to be in talks with Japanese turbine firm Mitsubishi.

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