Utilities and independents forging ahead -- Spain on a bull run

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Investor confidence in Spanish wind power is at an all time high with the introduction last year of a viable market-structure for long term sales of wind electricity and a new central government set on raising the national wind target. Against this background, the country's utilities, spurred by the need to make stringent carbon cuts, are setting themselves ever more ambitious targets, while the entire sector is actively focused on prising open the grid for connection of 12-14 GW more of new wind capacity to add to the over 8000 MW in operation today.

In 2004, the wind industry added 1890 MW or 2060 MW in Spain, depending on which organisation's figures are to be believed, giving a cumulative tally of 8095-8265 MW. The optimistic figure comes from the Asociación de Productores de Energía Renovables, the lower one from wind group Plataforma Eólica Empresarial (PEE). Regardless of where the true figure lies, for the first time Spain is sparring with Germany as the largest market for sales of wind plant. PEE says Spanish wind energy growth, at 29%, is the highest of any major wind market. It is confident the pace will continue in 2005 and beyond.

Growth has been spurred by last year's new market regulation. It indexes rates of payment for wind power to the average electricity price across the whole market. The average is the reference, both for a new fixed premium rate for wind production and for an alternative incentive payment for trading production on the wholesale market. For the first time, operators enjoy long term and predictable income over the life cycle of their wind plant.

"But the regulation reaches much further than earnings," says PEE's Ramon Fiestas. It also obligates operators to make hourly schedules for the power they will feed to the grid, though this is not required under the fixed tariff option until January 2006. Incentives are also available to encourage use of technology that enables wind plant to ride through grid faults. Industry minister José Montilla says both requirements -- for hourly scheduling of production and provision of grid support -- are essential for greater wind penetration of the Spanish power system.

Indeed, a new Spanish government, which came to power on the heels of the regulation, has promised to raise the national wind target from the current 13,000 MW by 2011. No target has been set, but state energy departments widely talk of a 20 GW cap. A key to setting the new target lies in a grid study project being carried out by PEE and grid operator Red Eléctrica de España (REE). Its findings, which should identify how much wind power can be taken onto the grid while maintaining security of supply, are due for publication in April. PEE's Fernando Ferrando is confident it will propose lifting restrictive grid rules on wind plant connection, some of which date back to the 1980's, to take account of today's far more sophisticated technology and the much improved understanding of wind integration into modern power systems. Ferrando believes the new target could be raised as high as 23 GW.

Utility clean up

Last year, just three utilities developed over half the new wind capacity (table), according to PEE, whose members operate 85% of Spain's wind power. Iberdrola was in a league of its own, with 41%, followed by utilities Endesa and Hidrocantábrico (through renewables wing Genesa), which were each behind 7% of new capacity.

The utilities have been given good reason to build more wind plant. Under the government's national allocation plan for carbon emissions, which came into force in January, polluting power plants emitting beyond their allowance must buy rights to do so. Iberdrola, with nearly 3000 MW of wind plant online, has announced it will develop 5500 MW by 2008. Last month, Endesa set a 2500 MW renewables target for 2009. Hidrocantábrico is aiming at 1000 MW by 2010, through its own developments combined with acquisitions, says the company's Javier Mateache. Meantime, Unión Fenosa, lagging behind after divesting its 30% share in the 55 MW Altos de Voltoya wind farm in 2003 and later selling 80% of its renewables wing to Italian Utility ENEL, has done an about turn. It has announced its intention to buy back 30% of Enel Unión Fenosa Renovables (EUFR). At the same time EUFR announced a 242 MW renewables investment plan in Spain to 2006. The sudden change followed a World Wildlife Fund report which ranked Unión Fenosa 51st out of 72 European utilities in terms of its green energy commitment. Iberdrola was ranked first.

The independent wind power producer business is also growing. Right across the project developer spectrum, the Spanish market is buzzing with mergers and acquisitions, an indication of fast growing confidence in growth. Corporación Energía Hidroeléctrica de Navarra (EHN), which operates 11% of cumulative capacity, has now been entirely bought out by industrial group Acciona. Capital risk firms Bridgepoint and Mercapital bought over half of Corporación Eólica (CESA). Now CESA is negotiating a merger with Terranova (page 32). And Dutch utility Nuon has put Desarrollos Eólicos up for sale, reportedly due to the company's slow progress in getting projects built.

Keen regions

Most of the Spanish regions that already have sizeable wind markets are pushing for more, keen to attract the economic growth that accompanies development. Last year's key growth regions (table) are still forging ahead, permitting new plant as fast as grid improvements allow them to. Developer associations in Galicia and Castile and León both mention that talks are proceeding to raise their respective wind targets to 6000 MW for 2010.

New, or re-emerging, regions of development are also appearing. The way is clear for 2482 MW of development in the huge southern region of Andalucia following a regional government concession late last year. At the same time, the developers of a 2700 MW concession awarded in Valencia in 2003 have been pooling resources in building new infrastructure. EHN, behind nearly 800 MW of plans in Valencia, says building on its first few projects is imminent. Crawling Catalonia is at last opening up, too. Three projects are building, which will double the region's cumulative tally of 94 MW. Furthermore, the Catalonian government has announced an agreement with REE to fast-track connection of 1500 MW in 29 projects slated for the provinces of Tarragona and Lerida, according to Jaume Margarit of the regional energy department.

A new market will also open in the western region of Extremadura, bordering Portugal. Rural tourism is a major source of income in this relatively poor region and the regional government pronounced a firm "no" to all proposals from developers in 2000. But now, bowing to pressure from municipalities eager to accept land-lease offers from developers, the government of Extremadura is finalising a specific wind development regulation. "The document is designed to guarantee stringent environmental and landscape protection and to ensure local economic benefits from development," says Ricardo Motes de Oca of the regional industry department. He declines to reveal how much capacity will be available.

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