Solar, Utility Scale

The (r) evolution of the solar energy sector in Spain

By Hanjin - Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=33450932

With an average of 300 days of sun per year, the present and future of clean energies in Spain are focused undoubtedly on solar energy. By installing over 4GW of capacity in 2019 (14 times more than in 2018), Spain will lead the solar market in Europe this year, a landmark that illustrates the solar energy sector in the country has already taken off.

But why now, after what can be considered false dawns previously? The global picture has changed: an important energy transition is now underway and many factors will determine the world’s energy future. These include government policies that seek to promote social wellness while addressing the risks of climate change. Technology will also be vital to improve living standards through addressing climate risks. Technological advances continue reshaping the energy playground. Many technologies, which did not exist five or 10 years ago, have a more important role today and their impacts will continue expanding.

In Spain, the electricity system is undergoing significant changes this year. Gas has now gained a key role, partly helped by cheap prices and the fact that the carbon market has managed to expel coal from the system. At the same time, more and more renewable energy plants are being installed in the country, especially solar energy farms. This rise of renewable energy in Spain is due to several reasons: the greater technological competitiveness and lower costs, the auction of renewables presented by the government, the objectives set by the European Union to promote this type of technology in the global energy mix and the awareness about the development of self-consumption as a measure of energy saving and sustainability.

There are no signs pointing to a slowdown in the near future. There has been a fall in technological costs, an increase in institutional support and an expansion of financing options, which have all placed renewable energies – especially solar and wind energy – as the most viable backbone of the “decarbonisation” of Spanish and global energy supplies.

The Spanish government has played a key role in encouraging progress by presenting the Draft of the National Energy and Climate Plan 2030 (Plan Nacional Integrado de Energía y Clima (PNIEC) 2021-2030). The main aim of the plan is that renewable energy should account for 42% of the country´s energy needs and 74% of Spain´s electricity needs by 2030. In effect, it represents one of the most ambitious energy plans in Europe.

Accordingly, an increase in requests for grid connections and greater numbers of solar plan installations have caused Spain to implement more sophisticated regulations. However, the authorities still need to address unbridled land speculation, grid bottlenecks and the impact of the installations on biodiversity and native species. One palliative measure could be maximizing the sustainability of installations by reducing land use and increasing the energy produced per hectare.

Further steps to achieve a widespread adoption and a sustainable use of renewables have been also undertaken by international organisations such as the UN through its Climate Change Conference, held in June earlier this year, which had among its main targets a swift changeover to renewable energies in order to meet the UN Paris Agreement 2016 on climate change and to comply with the EU Renewable Energy Directive (2009/28/EC). In December 2018, a revised directive 2018/2001/EU entered into force, establishing a new binding renewable energy target for the EU for 2030 of at least 32%, with a clause for a possible upwards revision by 2023.

Financial institutions are also supporting the renewables sector. For instance in July we saw Fotowatio Renewable Ventures sign a deal with Spanish bank BBVA to convert its credit line to ‘green’ and expand it to EUR 60M. This means the line will be used exclusively for the financing of projects that promote renewable energy sources. This financing agreement falls within BBVA’s commitment “Compromiso 2025” of a credit line of EUR 100,000M until 2025 solely for financing sustainable projects to fight against climate change, most of which are in the renewable energy sector.

This exponential rise in the Spanish solar energy market has in turn triggered a dramatic change in the way these energy projects are being financed. Traditionally, energy development companies toil to find buyers who will purchase the electricity produced in their solar farms. So far, the usual way to orchestrate the long-term sale and purchase of electricity has been through Power Purchase Agreements (PPAs). In a PPA, the client of the developer commits to purchase at a fixed price and during a certain period of time (usually between 10 to 15 years) the electricity the solar plant will be producing. Once the PPA is signed, the developer submits the agreement to the credit entity, which grants the requested credit in view that the developer already has a buyer for the electricity for a secured price and a minimum period of time.

One of the biggest innovations in project financing in the Spanish renewables sector occurred in July 2019 when Renovalia, a Spanish company specialising in the development of renewable energy, closed a financial agreement with the Spanish bank Banco Sabadell for EUR 29.7M. The agreement was geared towards the construction, commissioning and operation of five solar plants totaling 79.2 MW in the south of Spain. This is the first time in the Spanish renewables sector that a developer has obtained financing from a credit entity without a buyer, and consequently, without a traditional PPA in place. These so-called Merchant PPA Projects, which allow the developer to sell the electricity into the wholesale market at a market price, underline the confidence of the banks in the Spanish renewables sector. Clearly, they trust the price fixed by the energy market will be sufficient to have their funding returned.

In summary, the rapid proliferation of solar energy projects in Spain, the actions of national and international governmental authorities as well as credit entities, alongside the innovative changes in project financing, have prompted a significant evolution and indeed revolution in the Spanish solar energy sector.  

Lead image: Solar covered parking lot in Madrid. By Hanjin – Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=33450932