Wind is around 9.5% more capital intensive than government estimates claim, concur both reports. They also say the cost of installing wind generation is rising from the current level of EUR 950,000 for each megawatt to over EUR 1 million. The findings are being lodged before state energy secretary Jose Folgado. Earlier this year, he promised to offer greater stability to Spain's wind power tariff regulation by next month, but the deadline has now been stretched to "before the end of the year."
The reports have been prepared by a broad renewables group, Asociación de Pequeños Productores Autogeneradores (APPA) and Spain's new Plataforma Eólica Empresarial (PEE), a wind industry association. While APPA's report is on Folgado's desk, PEE was still putting the finishing touches to its document last month. Both, however, call for an increase in the special production subsidy paid to wind generation. Without it the government's aim of 13,000 MW of operating wind power by 2011 will not be met, they warn. Given current tariff trends, only 20-30% of the 8000 MW of new capacity targeted will get built, says PEE.
High risk tag
The unease in the Spanish market, claim the two associations, is reflected in the "high-risk" tag being applied to wind power investments, which are technically rated at BBB- to BB+ by market analysts Standard and Poor (S&P). Although S&P insists it has not made its ratings public, APPA claims the information has come down through banks involved in wind plant investment, such as Unicaja and Barclays.
The energy department is declining to comment on the calls for higher tariffs, other than to say it fully supports wind and the other renewables. It again reiterates its earlier argument that wind is "surpassing established targets by far," the indication being that it considers the current level of support to be sufficient.
Both reports stress that the best wind sites have already been taken in Spain and that the remaining less productive sites are further from electricity infrastructure, making grid interconnection more costly. The two lobbies say the increased productivity of megawatt turbines -- these days being used more often to make the most of low wind sites -- is not enough to offset those extra costs. Furthermore, administrative bottlenecks in the permitting process continue to add unnecessarily to the cost of wind power development, they say.
"In Germany, all wind plant have a stable pricing system over a 25-year period. Such stability is fundamental for investor confidence but is lacking in Spain," says APPA's Enrique Albiol. PEE and APPA want guaranteed minimum prices for wind power over a minimum of 15 years. Currently, Spain's two subsidy mechanisms are adjusted annually (Windpower Monthly, January 2003).
The option chosen by nearly all plant operators is a kilowatt hour production incentive, which is paid by distributors in addition to a rate based on the electricity pool price. Pool price is merely used as a marker as wind does not trade on the market. Instead, distributors are obliged to buy up all wind production directly at the dictated pool price average. The alternative subsidy option -- chosen by just a handful of wind producers -- is a fixed tariff throughout the year, calculated to bring in the same overall returns as the market linked option. But with pool prices rising in the past two years, the production incentive option has given the best returns.
Heavy rains during the winter and spring are changing that balance, however. Spain's huge hydroelectric reservoirs are filled to the brim, slashing the pool price and bringing the market linked wind tariff below the fixed tariff. PEE says the wavering tariff is a further source of investor uncertainty, while APPA complains that the government's annual tariff revisions do not take into account losses from the previous year's pool fluctuations.
Long term fixed prices reduce financing costs, says PEE's report, which quantifies the costs of tariff uncertainty. Spain's production incentive, known as the prima, would have to increase by 3.5% each year if the government's 1300 MW objective is to be reached, says PEE. This would cost around EUR 1021 million a year by 2011. By guaranteeing the prima over 15 years, however, risk would be reduced, resulting in savings of EUR 157 million annually. Long term payback guarantees would also bring investment yields of between 7.9% for less productive plant and 9.1% for wind stations on good sites, says PEE.
Greenhouse emissions credits, suggests PEE, could be used to back a large part of Spain's wind tariff subsidies instead of putting the full cost burden on the electricity system and, ultimately, the electricity consumer (Windpower Monthly, January 2003). The suggestion comes at the same time as mounting pressure from the state climate change office, Oficina de Cambio Climático, to establish emissions trading mechanisms by 2005 at the latest. PEE estimates the 13,000 MW target for wind to be equivalent to cutting around 11% of all Spanish greenhouse gas emissions, or EUR 1300 million in emissions trading rights. PEE also proposes introducing an ecotax on polluting fuels and pumping revenue into subsidising a higher wind tariff.
Similarly, PEE's report also quantifies the costs of meeting increasing demands from grid operators for better quality power. Boosting accurate production forecasts to 30 hours ahead and making wind plant provide the reactive power needed by the grid will each add EUR 0.005/kWh to production costs, says the group. Wind tariffs must be increased to cover these costs, says PEE.