The cuts are being billed as part of the government's anti-inflationary policy. This aims to reduce retail electricity prices by 2.1% this year, kicking off with an immediate reduction of the pool price of 1%. The reduction in renewables payments, however, is severe and far in excess of the 3.5% recommended by the Comision Nacional del Sistema Electrico (CNSE) in its half yearly report issued last June. The CNSE receives and processes structural information on all national electricity producers and its recommendation for a 3.5% cut was proportional to its recommended reduction in the overall consumer price.
Hit by an average 5.48% tariff cut, wind, it appears, has simply been run over in the government's broad anti-inflationary drive. Neither the ministry of industry, nor the major financial entities backing wind developments in Spain, nor any of the four big utilities, have any explanation or comment on the new rate. As a result, the Socialist opposition party, PSOE, has called upon industry minister Josep Pique to provide an explanation to the parliamentary Commission of Industry, Energy and Tourism regarding details of the tariff cuts. With parliament now dissolved pending the March general election, however, Pique could just stay quiet.
What the effect of the tariff reduction will be on Spain's current rush of wind plant development is not being openly discussed. Wind companies are hiding behind the official statement of the fledgling Asociacion de Productores de Energias Renovables (APPA). It accuses the government of treachery. Only a little more than a month prior to the government's end of year announcement, Carmen Becerril, director of the energy diversification agency, IDAE, had promised there would be "no tampering" with the premium rate (Windpower Monthly, December 1999).
Off the record shrug
According to APPA, the reduced tariffs will strangle the renewables sector in its promising infancy. With regard to the wind business, however, this seems unlikely. While wind companies are officially backing the APPA statement, behind-the-scenes the tariff cut is being greeted with a stoic off-the-record shrug by at least some well established project developers. In a guarded comment, one company representative, deeply involved in the current wind rush, points out that a reduction in the tariff could serve to sharpen up the industry. New prospectors will either have to discard sites with borderline wind resources or seek out the technology and know-how to increase productivity from such sites, he says.
Indeed, the huge success of wind in the regions of Navarra, Galicia and, more recently and spectacularly, in New Castille, undermines the impression of a struggling sector in need of heavily weighted price support mechanisms. Around 1000 MW has either been installed or put on track for development over the past year in these areas.
For the government, or Xunta, of Galicia, however, the tariff cut is perceived as a direct threat to the region's economic growth, to which the wind industry has made a significant contribution. The region has more wind plant installation activity than any other, with 481 MW in operation. The Xunta says the cuts are "excessive." It adds that it did what it could "to make the government reconsider its decision" to make as harsh a cut as the statue books allow.
Galician wind plant developers, ten of which are gathered in the Associacion Eolica de Galicia (Ega), are not so sure the government did stay within the law. Ega is studying the possibility of taking up an appeal against the cuts. The group, formed in 1997, shares the prevailing industry view that the reductions are, at best, excessive.
Few doubt that the reasons for such excess lie with the government's reluctance to make the conventional power industry take the brunt of its anti-inflation policies, picking instead on the less influential renewables sector, as APPA's Sergiode Otto points out. APPA refers to the "flagrant unfairness" of making the special electricity regime - Regimen Especial - bear a greater relevant share of the cuts. Regimen Especial includes renewables and cogeneration.
While conventional electricity producers sit on 86% of the national electricity market, valued at EUR 12 billion, the tariff cuts mean an annual drop in earnings for them of only EUR 120 million, according to the Union Nacional de Empresas (UNESA), the Spanish employers association. But for renewable energy producers, whose combined turnover is no more than 4% of the Spanish electricity industry total, or EUR 481 million, the cut will amount to EUR 27 million in lost earnings, says APPA.
Spanish press reports of APPA's intention to take legal action against the government's tariff decision are refuted by the association. Nonetheless, it feels its members have maintained their part of the 1997 post-Kyoto deal with the government "to assume the same effort towards efficient production as the conventional electricity sector." The government has reneged on it, says APPA.