Tension rises with tariff up for revision

At the end of its first four years of operation, Spain's special renewables tariff mechanism is up for revision this month. Renewables association APPA is campaigning hard nationwide for tariff protection, shooting down arguments that wind prices are too high and are out of control

Government messages on Spanish wind power support have been decidedly mixed over past weeks. In late October, energy secretary José Folgado stated that special tariffs paid to mature renewables such as wind should be "gradually phased out." He expressed interest, instead, in an energy market structure like that in Britain, which requires electricity retailers to compete for green power credits. His comments were reported in the international press and applied to Spain's electricity tariffs. Only days later, however, members of Spain's renewables lobby were claiming that Folgado, who they had met with privately in a hastily called meeting, denies having said any such thing -- and has no intention of modifying Spain's existing tariff system for renewable energy. Indeed, Folgado's office has since repeated this denial.

To add to the uncertainty, what Folgado may and may not think is only partly relevant. Ultimately, it is the economy ministry, as controller of the state energy department, that has the final say. It is due to rule this month on whether the renewables tariff, which by law must lie between 80-90% of the pre-tax price the consumer pays for electricity, should lie at the lower or upper end of that scale (box). Today wind is achieving returns equal to 93% of the consumer price.

The government is caught in the middle of a highly pressured debate. On the one hand, ministers are clearly listening to the concerns of the grid operator, the national electricity board and the utility association that too much wind is coming online too fast at too great a price. On the other hand, knowing that Spain needs more generation while being committed to a tough emissions reduction target, and that the wind industry is a significant economic dynamo, ministers are paying close attention to the renewable energy industry and its energetic "hands off our wind tariff" campaign.

According to the national renewables producers association, Asociación de Pequeños Productores Autogeneradores (APPA), Folgado told its delegation: "The support system for renewables in the short and medium term is not going to be modified and if and when modification is required in the future this will never be done behind APPA's back." Folgado was not referring to the Spanish renewables tariff, when speaking in October at a London seminar, but making a point about national support systems needing to be compatible with the EU's future pan-European carbon emissions directive, says APPA's Manuel de Delás.

In fighting to retain or increase the current wind tariff, APPA's trump card is the statutory target for renewable energy to meet 12% of primary energy requirements, contained in the national renewables promotion plan, Plan de Fomento, adopted in late 1999. Since wind is the only renewable making any significant progress towards that target, tariffs should be increased not reduced, Delás argues.

Worried establishment

Criticism of the renewables tariff, however, is rife behind closed doors of the higher echelons of the electricity system. Alarm bells regarding the costs and adverse affects to system stability are ringing loudly following the setting of a new wind target: 13,000 MW to be reached over the next decade (Windpower Monthly, September 2002). The target, outlined in the latest government-endorsed energy infrastructure plan, represents a 4000 MW increase on the Plan de Fomento minimum objective.

The national energy and electricity board, (CNE) is increasingly critical of wind power. Earlier in the year it publicly hinted at a reduction of the special tariff for wind, before later refuting its comments. Insiders insist they were real and made by a high ranking director (Windpower Monthly, May 2002). Indeed, recent remarks by CNE president, Pedro Moroño, back this view: "Some types of [renewable] energy, like wind power, have experienced technological improvements turning them from special energy to ordinary energy," he told national daily El Mundo last month. He was comparing Spain's "ordinary" electricity market, the Regimen Ordinario, which requires competitive delivery of scheduled generation to a power pool, to the Regimen Especial, which obliges electricity retailers to buy all renewables power at premium tariffs. CNE has commissioned a consulting company to prepare its recommendation to the government on the tariff revision.

National grid operator, Red Electrica Española (REE), will also be participating in the review. It is already talking of the difficulties of guaranteeing electricity supplies in a system already susceptible to blackouts, while juggling a non-dispatchable source like wind within the system (Windpower Monthly, July 2002).

Balancing costs

For its part, the association of Spain's electricity generators and retailers, UNESA, objects to being landed with the costs of coping with non-scheduled generation -- even though its members are behind most of the country's wind power development. With pockets of industrial-scale wind plant in Spain often topping 100 MW, unexpected spells of wind can blow more power into local networks than needed. This is especially the case at night, when low demand often coincides with peak winds. Retailers, who are obliged to buy sudden surges of wind input at premium rates, must wheel the surplus across the transmission network to where it is needed.

During 2001, the annual costs of juggling surpluses from Regimen Especial -- which includes power from waste incineration and cogeneration as well as renewables -- cost retailers EUR 1909 million, around EUR 93 million higher than predicted when the economy ministry calculated the tariff for 2002, according to UNESA's José Maria Marcos. Under current regulation, these costs are not refundable. UNESA is believed to be pushing for December's revision to enable annual adjustments to recoup the surcharge.

technological advances

Delás says most of the technical problems presented by CNE, REE and UNESA are not applicable to the market "today or even the day after tomorrow. Wind is only 2.5% of the mix. How can that threaten grid stability?" he asks. "This does not mean that we do not want to work towards improving wind production prediction and other technological advances to increase grid security as more wind power comes online. We do."

Furthermore, the opinion held by the administration that investment in wind plant gives excessive returns is not true, says Delás. To prove the point, APPA will be presenting a report to the economy ministry. "Earnings for wind power in Spain are already among the lowest in Europe," claims Delás. "The sector is showing alarming signs of deceleration with only 200 MW going up in the first half of 2002. Wind turbine prices are rising and interconnection costs have gone through the roof." Delás points out that the windiest and cheapest sites to develop are now in use. The remaining sites offer diminishing returns and will only be developed if a tariff at the high end of the scale is retained, he says.


Statistically, the association claims that of the two tariff options (box), the real value of the fixed price tariff, at EUR 0.0628/kWh, has fallen in real terms by 15.22% since its introduction in January 1999. APPA fails to mention the second and more popular market-based tariff option -- a production incentive set at EUR 0.0290/kWh for 2002. The production incentive tops up a "market" rate for wind, which is calculated using power pool prices as the base. This year, an inflated power pool has pushed kilowatt-hour returns for wind beyond 93% of the consumer price of electricity, three points above the 90% government target in force since January 1999. APPA argues that wind needs the extra stimulation so it can make up for the failure of other renewables to get a foothold on the market.

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