Victor Durán Schul and Jaime López-Pint, Ernst and Young
December 30, 2011 | 0 Comments
Developers, manufacturers, investors and other renewable energy industry stakeholders need to know where the next big market is going to be so that they can adjust their business decisions accordingly.
Since 2003, global consultancy Ernst & Young has released its Country Attractiveness Indices, which gives a numerical ranking to 30 global renewable energy markets by scoring renewable energy investment strategies and resource availability. The indices are updated on a quarterly basis and the most recent report can be found here.
Here is the firm’s assessment of Spain.
Following the expiry of its 2005-10 renewable energy plan, Spain is now looking to map out its strategy for the next decade to meet its binding EU 2020 emissions target. Early in the quarter, Spain approved more modest targets in its final draft of the 2011-20 renewable energy plan, in a bid to control subsidy costs while still encouraging growth.
Compared with the June 2010 draft, which set out a target of 22.7% of total energy from RES, the country now aims to generate 20.8% from RES by 2020. This is equivalent to an installed capacity of 50 GW, down from 53.2 GW in previous drafts but is still almost double the 26GW installed at the end of last year last year The table below sets out the revised capacity targets. The table below sets out the revised capacity targets across the various renewable technologies. The most significant change occurs for PV, which had a 2020 target of 13.5 GW in previous drafts.
Spain’s revised targets remain ambitious and do not appear to signal a lack of commitment by the Government. However, the success of this plan will rest largely on the backing it receives from the party that wins the forthcoming national general elections on 20 November 2011.
Just as the solar sector is beginning to come to terms with the major revisions to its incentive scheme over the past year, it appears that the wind sector must now also share the burden of helping the country reduce its subsidy bill for green energy. Spain’s landmark renewable energy Law, 661/2007, only governs wind power prices for new projects through to the end of next year, therefore a draft decree sent to the national energy commission in September sets out the proposed regulations post 2012. However, lobbyists are arguing the 2020 target will not be achieved if the bill is passed.
The draft bill, which sets out the rules for wind farms from 2013 onward, proposes a system of variable premiums which will diminish for capacity installed each year in excess of the annual target of 1.4 GW (required to reach the 2020 target of 35 GW). For the first 1.4 GW, all producers will receive a €20/MWh premium over market prices; however, the guaranteed floor price will decrease from the current €77/MWh to €55/MWh, and will be reviewed annually.
The decree also limits subsidies for wind projects to 12 years compared with the current and developers will only receive premium payments during the first 1,500 operating hours each year. Finally, premiums will not be revised in line with inflation.
The Spanish wind energy association (AEE) has warned that these measures will introduce a level of volatility into support levels that could make financing projects impossible. It claims that the proposed measures will essentially result in a 40% reduction in support for wind farms installed after 2012. Wind sector developers and investors in Spain, and across Europe, will be waiting nervously over the coming months to see whether the draft decree will be passed and its likely impact on the country’s project pipeline.
While Spain’s solar PV sector continues to face falling profits and legal wrangling, the country’s CSP sector continues to prosper as the world’s number one market. At the end of July, installed capacity totaled 852 MW, almost double that of the U.S., the second biggest CSP market. Spain currently has 21 plants online, 27 under construction, and 13 fully licensed facilities, the result of which will be an estimated installed capacity of around 2.5 GW by the end of 2013.
In order to finance these new CSP projects, companies have opted to establish JVs, particularly with Japanese partners such as Mitsubishi, Mitsui, Itochu and JGC Corporation. Project financing has also becoming an increasingly viable option for CSP projects. For example, eight European banks have provided €288m for Solar Millennium AG’s 50-MW Arenales project near Seville, along with a €10 million letter of credit and a €21 million value added tax (VAT) facility.
Prior to the recently proposed wind subsidy cuts, 2011 had witnessed a surge in M&A activity, notably the sale of ACS’s renewable energy assets to the following three buyers:
And the distressed solar PV market has also given rise to an upswing in M&A activity. This has resulted in one of the largest investments in an operational portfolio to date: Munich-Re and KKR’s acquisition of a 49% stake in a diversified portfolio of solar parks and operational assets from T-Solar Global SA for a consideration of approximately €140 million.
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