The news that wind targets set by regional governments are to be slashed by around 40-50% emerged in a document leaked from national energy efficiency agency Instituto para la Diversificación y Ahorro de la Energía. For some of the least windy regions targets have been cut even more -- in Catalonia's case by 80%, from 3016 MW to just 585 MW.
The government says it is prepared to adjust the limits for each region come 2008, depending on which are the best performers. But nationwide, wind power capacity must be limited to 20.2 GW. The wind industry, however, fears serious consequences. "Imposing regional limits threatens the national objective," says Fernando Ferrando of Asociación Empresarial Eólica (AEE), the national wind association.
He points out that capping Andalucía's wind target at 2074 MW could scupper a grid improvement plan designed for a regional target of 4000 MW forged with REE over the best part of four years. As in most big wind regions, the cost of new transmission capacity and grid connection is shared by developers in the area. If half of those pull out as a result of the government's caps, grid investment plans could crumble, says Ferrando.
Manuel Pazo of Asociación Eólica Gallega (EGA), the wind association for Spain's windiest region, Galicia, fears that politics is also playing a role in how the caps are applied. He feels that development in windy regions is being restricted to allow less windy regions the opportunity to share in the economic benefits that the wind industry brings to a community. "Energy efficiency is under attack," he says. Even the revised targets for less windy regions are probably too high, says Pazo.
Preventing installation of turbines in windy Galicia, where they typically run for the equivalent of 2300-3000 hours a year at full load, to allow turbines to run for just 1200-1500 hours at nominal capacity in another region, makes no sense if the aim is to produce wind power as efficiently and economically as possible, he says. "They understandably want the local jobs and investments that wind generates in Galicia and other big wind regions. That's politics, not energy efficiency."
Capping prices too
To add to the market insecurity, the government is also considering capping prices paid for wind power. With the wholesale price of electricity in Spain going through the roof last year, mainly due to shortages of hydro power reserves, prices for wind -- which by law are linked to the wholesale price -- followed the sharply upward curve. Wind farm owners were paid on average EUR 86.61/MWh last year, 30% more for their power than expected -- a windfall profit the government is not about to accept for an energy source already favoured with priority grid access.
An earnings cap is "not the end of the world," says AEE's Alberto Ceña, but Ferrando is concerned that 2005's bonanza might dominate the earnings review. "It's long term trends that count but nobody mentions 2004 when we earned below target," he says.
AEE also points out that installed costs of wind power are rising for several reasons, not the least of which is a global hike in turbine and component costs as demand exceeds supply. Developers are also having to turn to less windy sites and more remote locations -- as the more accessible and windy sites get taken -- resulting in tighter project margins.
AEE says wind plant are being installed today for EUR 1.15 million/MW, while a report by financial consultants Intermoney says the cost will hit EUR 1.35 million/MW by 2010. The government, however, has based its policy on the EUR 0.95 million/MW projects that were being installed for a year or two ago. Although this has been revised to EUR 1.05 million/MW, it remains below AEE's figure and below the European average of EUR 1.19 million/MW.
Even if current incentive rates are maintained, internal rates of return could dip below 7.1% with only a moderate reduction in pool prices in 2009-2010, says Intermoney. "That's just a blip, perhaps, yet it risks slowing investment and achieving the 20 GW goal in time," says Ceña, Spain currently has 10.7 GW of wind plant online, 700 MW of it being installed in the first five months of 2006 alone.