Draft proposal signals cuts -- Wind prices in Spain

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An 8% cut in Spain's production incentive is on the table for 2003. The cut in the kilowatt hour subsidy, known as la prima (the premium), is contained in a draft proposal leaked from the Spanish economy ministry last month. The premium is one of two main components of Spain's renewables pricing mechanism, now up for a standard four yearly review. The second component, a fixed wind tariff, which can be chosen instead of the premium, is in line for a 1% cut. To date the tariff has given lower returns than the premium and has not been popular.

The premium was EUR 0.02897/kWh last year and the tariff EUR 0.06443/kWh. The proposal for 2003 in the leaked draft is EUR 0.02664/kWh for the premium and EUR 0.06377/kWh for the tariff. The premium is paid on top of a "market" price based on the Spanish power pool price. Since pool prices have been rising, wind prices have followed. Government policy is for wind payments to lie between 80-90% of the pre-tax consumer price of electricity, but last year, at 93%, they exceeded the cap by three points.

Whispers from utility sources have indicated that Union Fenosa and Endesa, who are required to buy the wind power, have been pressing for a tariff reduction. Iberdrola has not followed suit, but Andres Bartrina of IberRenova, the utility's renewables division, says Iberdrola is concerned about what will happen when Spain approaches the 9000 MW target for 2010. "We have to look at market mechanisms for the post-take off period when such large amounts of guaranteed power injection will seriously affect grid operations," he says. "You cannot rule out the possibility of the tariff disappearing completely in the long run."

The formation of a new Spanish wind association this month, Plataforma Empresarial Eólica (PEE), seems to be in anticipation of that eventuality. PEE says it will look at other payback systems for wind, although it supports the existing pricing mechanism as a tool for levelling the playing field in an uneven market. PEE expects mechanisms for internalising wind's environmental benefits, such as emission trading and green credit trade, will eventually play a part.

Spain's existing renewables lobby group, Asociación de Pequeños Productores Autogeneradores (APPA), does not echo PEE's pragmatism. Joining with environmental groups and the national trade union, it slated any cut in payments for wind as an insensitive and a cynical failure to recognise the real costs of power from fossil fuels. APPA has consistently argued that breach of the 90% price-cap is of no account when the overall targets for renewables capacity are not being met.

At the start of last month, APPA believed it had all but won that argument after a court ruling against utility Hidrocantabrico. In an attempt to get the mandated wind payments reduced, Hidrocantabrico had brought a case arguing that breaching the 90% price cap contained in the renewables law from 1997 made the mandated payments illegal. It lost.

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