Spanish wind shifts into cruise in stable market -- Target of 20 GW by 2010 in sight

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After wind power developers added a record 3.5 GW of new plant in Spain two years back in a rush for a favourable power purchase rate, the country settled into cruise mode in 2008, installing 1609 MW -- an annual rise of 11% -- bringing the cumulative total to 16.7 GW (table). "The industry's now back, as predicted, at the steady growth rate reached in 2006," says Jose Donoso of wind association Asociación Empresarial Eólica (AEE). With little immediate fallout from the global economic crisis expected, the industry aims to add new annual wind capacity of between 1.5-2 GW this year and next -- enough to meet its goal of 20.1 GW by end-2010 and 29 GW by 2016 if the mid-range is achieved.

Doubt remains, however, about the veracity of Spain's wind power statistics. The wind sector is trying to put behind it allegations of fraud last year by energy regulator Comisión Nacional de Energía (CNE), which said in November that there was 1 GW less wind capacity online in 2007 than stated in AEE's tally (Windpower Monthly, December 2008). CNE also said the sector put up just 522 MW in 2008, less than a third of the AEE figure, while research by BTM Consult for last year's edition of its world market update of wind development failed to find the last 400 MW or so of AEE's claim of 3522 MW. AEE acknowledges making an error, but says its stated total for capacity installed in 2007 was just 6 MW less than its initial calculation. The association also says the regulator underestimated wind production in 2008, citing just under 25 TWh, 4 TWh less than the 29 TWh registered by transmission system operator Red Eléctrica de España.

While just how much the wind industry must install to reach 20.1 GW remains in doubt, it says it cannot do it without some pain. Profit is falling, claim developers, following a reduction in the legislated power purchase prices for wind produced electricity, which kicked into force for all wind plant installed since the start of 2008. Spain's electricity retailers are required to buy wind power at the country's average wholesale electricity price, which is determined centrally. That price is augmented with an incentive payment decided by government, which is up for review in 2012. A bonus is also available for wind plant operators who schedule their production a day ahead of delivery.

The incentive payment is EUR 0.038/kWh, indexed to inflation, for plant installed before 2008 and is paid irrespective of rises in wholesale prices. For plant connected from the start of 2008, however, the incentive has been reduced to EUR 0.03/kWh and the combined wholesale price and incentive is capped at EUR 0.087/kWh, meaning that once the wholesale price exceeds EUR 0.057/kWh, the incentive decreases and if the wholesale price hits EUR 0.087/kWh, the incentive disappears. That happened once for a few hours in 2008 during the fuel price spike.

For wind plant owners uncomfortable with gambling, a fixed power purchase price is offered as an alternative to selling output on the wholesale market, currently set at EUR 0.074/kWh. But with a good chance of getting higher prices for wind power on the open market, plus the comfort of a legislated floor price of EUR 0.073/kWh, below which payments for wind must not go, less than 5% of wind generators have gone for the fixed price option in recent years.

During 2008, the average wholesale price was EUR 0.068/kWh, which combined with the incentive led to a windfall price of EUR 0.106/kWh for capacity online prior to 2008. For newer plant it triggered the EUR 0.087/kWh cap. In 2009, the wholesale market price is widely expected to plunge to an average EUR 0.045/kWh in line with falling fuel prices and heavy winter snow replenishing cheap hydro reserves. A review of rates will take place once installed capacity reaches 85% of the 20.1 GW, which may mean a further reduction in the purchase price.

The effect of the credit crunch on projects will not be felt in 2009, "or at least not right to the very end of the year," says Donoso, because new capacity going up in Spain generally has project financing cleared a year in advance of building. Stability is also given to the market by the dominance of Spain's big corporate and utility developers, which have the clout to attract financing for new projects.

New regions

Interest from wind project developers is strong in regions of Spain yet to develop into serious markets for turbines. The virgin wind power region of Extremadura, bordering Portugal in the south-west, conceded exclusive development rights to projects totalling 470 MW last year, many of which are close to being built. The small northern region of Asturias, with just over 300 MW online so far (map), has lifted a moratorium on wind installation in place since 2001, opening the way to 550 MW waiting in the wings, plus a further 600 MW of less developed projects. The neighbouring region of Cantabria has also lifted a long moratorium and is expected to allow the installation of 1200-1500 MW of wind plant by 2012.

Regions already going strong include Andalucía, which targets cumulative new installation of 4.8 GW of wind power by 2013. In addition to 350 MW connected last year, approximately 700 MW more is currently being constructed, according to regional association Asociación de Promotores de Energías Renovable de Andalucía. A further 1.5 GW has permits and the regional government is about to announce the results of a 500 MW tender called over a year ago. In Valencia on the east coast, which has just over 700 MW online, construction of another 450 MW awarded concessions in 2003 continues. Projects with concession contracts, totalling 2.3 GW, were supposed to be completed by end-2008. Valencia's neighbour to the north, Catalonia, with 420 MW online, is emerging from the doldrums with construction of 500 MW, according to regional wind association EolicCat. Meanwhile, the large inland regions of Castile-La Mancha and Castile and León have maintained their lead, with no signs of slowing down.

Yet doubts linger over Galicia, the leading wind power region for most of the past decade. The region has dropped to third place in terms of installed capacity due to years of squabbling over development regulation. Recently, Galicia conceded prospecting rights for wind developments totalling 2.3 GW, but the concessions are fiercely contested (Windpower Monthly, February 2009).

Manufacturer attraction

Activity by turbine manufacturers reflects the attraction of the Spanish market. While Gamesa has kept its dominance, with a 57% share of the total Spanish market and 50% of new capacity installed in 2008, outsiders are fast encroaching (table). Vestas, with a market share of 15%, saw 242 MW of its turbines added in 2008 and is expanding strongly in Spain; it recently consolidated all its Mediterranean activities at its Madrid office. In November, the company opened its first Spanish blade factory in San Daimiel, in Castile-La Mancha. It has also launched a EUR 50 million extension to its Villadangos del Páramo nacelle facility in Castile and León, one of its two in Spain. Vestas says it will build a EUR 10 million generator production line at another nacelle facility in Viveiro, Galicia, its third generator production line in the world. India's Suzlon, a newcomer to Spain, has applied for permits to build a EUR 22 million blade facility near the Andalucían city of Almería, following contracts totalling 187 MW in 2008.

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