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Analysis – Reform pushes Spanish renewables to the edge  

Credit:  19 July 2013 by Michael McGovern, windpowermonthly.com ~~

Spain’s wind sector looks set to collapse in the face ofthe government’s austerity-driven electricity sector reform law imposed by decree on 14 July, according to EWEA.

Enforcement of the full reform package, which lobbyists are calling “the death knell” for Spain’s already beleaguered renewables market, is scheduled for December 2013. This is before the detailed regulations surrounding the law are drafted.

But the law’s bare skeleton is already starkly clear. It ends existing renewables feed-in tariffs (FITs) in mainland Spain. Instead, support mechanisms will be through capital investment subsidies, using mechanisms yet to be established, for new and existing capacity. The guiding principle is a 7.5% pre-tax profitability target across the lifecycle of all renewables plants – 20 years in the case of onshore wind.

“This sounds like the last lethal knife blow to the wind industry,” Stéphane Bourgeois head of regulatory affairs for the European Wind Energy Association (EWEA) told Windpower Monthly. “Honestly I don’t see Spain going anywhere from there,” he adds.

On specifics he adds: “There are obvious risks that the investment premium model, being based on average figures for the whole of Spain, may reward bad investments, and penalize the most efficient ones. This system was only used in Russia, which is not excatly the avant-garde of renewables policy.”

The base rule means operators of existing capacity can be penalised, said Heikki Willstedt, policy director at wind association AEE. For instance, if a 15-year-old plant has already exceeded 7.5% lifecycle profitability, it will simply receive the going wholesale electricity price, without any subsidy.

Until the December approval, online wind capacity will receive the existing EUR 82/MWh FIT. But operators will have to pay back any profits in excess of new rules, backdated to 14 July.

Over the past 15 years, “investors have been invited to place their money on renewables, with state guaranteed conditions; that promise has been broken”, said Miguel Ángel Martínez-Aroca of photovoltaic association Anpier.

AEE is analysing, with EU energy commissioner Günther Oettinger, the legality of breaking the Spanish state’s successive promises since 1999 to guarantee FITs and other production incentives throughout plant life. The Spanish press foresees a deluge of law suites.

Profit slump

None of the associations can – or will – quote an approximate average range on wind plant profitability up to now, although one consultant confides he knows cases of developers “being okay with 8% returns, post-tax”. Nevertheless, AEE insists the supposed 7.5% “reasonable profit” rule – as the new law calls it – could drive operators to default on loans, passing the government’s money worries on to Spain’s crumbling banks.

This is because the law explicitly sets the 7.5% profit figure before taxation, such as the existing 25% corporate tax and the 7% tax clamped on all generation in December 2012. “Factor in taxation,” said Willstedt, “and high-risk wind investments will be getting about the same returns as low-risk state bonds [currently at 4.5%].”

Willstedt said the law removes any incentive to reach Spain’s binding EU commitment to reach 35GW wind capacity to 2020, up from 22GW today.

The reform is “hard but necessary”, according to the man behind it, industry minister José Manuel Soria. His aim is to cut the entire electricity sector costs by EUR 4.5 billion annually in order to slash a EUR 26 billion sector deficit accrued since 1999 – caused by a mismatch between costs and electricity bill prices. Renewables producers and utilities will each account for EUR 1.35 billion savings. Tax payers will put forward EUR 900 million and a 3.5% electricity bill hike will account for the remaining EUR 900 million. Without the reform, electricity bills would have to go up nearly 20%, says Soria.

Still, it has long-since been clearly demonstrated that renewables are not chiefly responsible for the electricity sector deficit, according to said Peter Sweatman, chief executive of industry analysts Climate Strategy. With the reform shifting half the burden on renewables and undermining foreign investor security in Spain, “it all seems very backward looking and it’s hard to see how it fits into European 2030 discussions on decarbonising economies”, he said.

Bourgeois sees a ray of hope: “Because this is so bluntly wrong, I hope it will enable the European Commission to intervene.”

Source:  19 July 2013 by Michael McGovern, windpowermonthly.com

This article is the work of the source indicated. Any opinions expressed in it are not necessarily those of National Wind Watch.

The copyright of this article resides with the author or publisher indicated. As part of its noncommercial effort to present the environmental, social, scientific, and economic issues of large-scale wind power development to a global audience seeking such information, National Wind Watch endeavors to observe “fair use” as provided for in section 107 of U.S. Copyright Law and similar “fair dealing” provisions of the copyright laws of other nations. Send requests to excerpt, general inquiries, and comments via e-mail.

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