Is the Spanish Government Putting the Brakes on Solar PV?

Spain’s Ministry of Industry, Tourism and Transport announced this spring that it would hold an auction for the installation of 500 MW and 200 MW of new wind and biomass power capacities, respectively. The date for the auction was not announced but it is expected that the call for submissions will be published in the State Official Bulletin in the near future. Bids for solar power capacity need not apply.

Sun Edison project in Caravaca de la Cruz (near Murcia), Spain. Credit: UNEF.

The Spanish Photovoltaic Union (UNEF) was upset by the news and is currently working to have solar PV technology, which it called “the most competitive in the world,” included in the auction. “The attempted eradication of the photovoltaic industry from the government does not have any explanation,” said Jorge Barredo, President of UNEF, adding that solar is highly competitive “not only between renewable energies, but also compared with traditional fossil fuels.”

The exclusion of solar PV from the recent auction announcement was not the only blow against the solar PV sector. Pedro Palencia, energy policy director at UNEF explained that earlier this year Spain’s government announced an auction for new power capacity for the Canary Islands that only sought wind. The Canary Islands complex is located in the North West Africa and has the highest solar irradiation in Spain.

Self-Consumption “Sun Tax” In The Making

There are other concerns regarding Spain’s current policy framework for the self-consumption of PV power and the lack of net-metering. The current self-consumption policy framework is very general and applies to both on- and off-grid systems. The government said it would publish the detailed regulations soon, adding that it is considering imposing a tariff that UNEF calls a “sun tax.” Effectively, this would mean that PV system owners will be taxed for the power they produce even if it is solely for their own use and not fed into the grid.

UNEF said that a “sun tax” like that would make solar uneconomical even for self-consumption. Net-metering, a policy found in almost all other Mediterranean countries, including Portugal, Italy, Greece and Cyprus, is not available in Spain.

The Flawed Spanish Energy Market

The Spanish energy sector faces serious problems stemming from caps on retail electricity prices, which have lead to market distortions. According to David Robinson of the Oxford Institute for Energy Studies, since 2001 the Spanish electricity system has accumulated a €30 billion deficit resulting from inadequate tariffs that were not high enough to cover electricity transmission and distribution costs, renewable and conventional energy subsidies and other regulated costs. All Spanish governments have been unwilling to pass the full costs on to customers, and the current situation has worsened due to a decrease in energy demand, the high costs of renewable subsidies and more specifically a terribly wrong remuneration policy for solar PV systems in 2007 to 2012, said Robinson.

Large solar installation in Spain. Credit: UNEF.

Solar on a residence in Spain. Credit: UNEF.

According to Robinson, the accumulated debt, “accounts for about 55 percent of a typical customer’s electricity cost, with the remaining 45 percent associated with the wholesale price of energy.”

UNEF’s Palencia confirms this. “The actual costs covering the electricity generation in Spain count for less than half of the consumer’s electricity bill and vary according to the power prices. The biggest chunk of the electricity bill covers a huge list of other costs, non-related to the fluctuating power prices of the wholesale market. Such fixed costs are set by the government, which aims to increase them further,” Palencia said. “Under these circumstances, we [UNEF] don’t see how self-consumption can become competitive in Spain,” Palencia remarked.

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Overcapacity and Depressed Demand

Last year’s new RD413/2014 renewable energy law paved the way for public procurement auctions for new power plants, which are expected to take place in 2016 at the earliest. The recent announcement to auction 700 MW of new wind and biomass capacities took analysts by surprise. Spain’s major energy sector problem is “excess capacity together with depressed demand,” Aitor Ciarreta, professor of Economics at the University of the Basque Country, Bilbao said. 

UNEF’s Palencia agrees. “Spain has installed almost double the power capacity it currently needs and this problem tends to increase further due to the weak state of the economy and the depressed demand,” he remarked. 

A glimpse of hope shined in February when Spain and France opened a new transmission line interconnecting the two countries and doubling the electricity exchange among them. The new line, which has a power capacity of 2 GW and is capable of reversing the direction of flow of the energy exchanges between Spain and France in just 50 milliseconds, is expected to boost Spanish electricity exports to France and alleviate Spain’s overloaded system. Spain is considered one of Europe’s energy islands being largely disconnected from the rest of Europe and the new line, which is expected to go into commercial operation in June, can provide a small, partial solution. 

According to the latest statistics published today by Spain’s electricity grid operator Red Eléctrica de España (REE), the electricity generation from January to April 2015 consisted of 22.9 percent wind power, 23.1 percent nuclear, 15.4 percent coal, 14.3 percent hydro, 10 percent co-generation technologies, 8.4 percent combined cycle gas, 2.8 percent solar PV, 1.7 percent thermal renewable technologies and 1.4 percent solar thermal. In April alone, an impressive 63.9 percent of electricity generation came from technologies producing zero carbon dioxide emissions, including nuclear energy. 

In terms of installed renewable power capacity, wind leads with more than 23 GW, hydro has installed about 2.1 GW, solar PV 4.7 GW, solar thermal 2.3 GW and other renewable thermal technologies around 1 GW. Spain’s total energy system has approximately 110 GW of installed power capacity. 

Policy Soup 

Spain’s latest renewable energy RD413/2014 law, passed last year scrapped feed-in tariffs (FITs) altogether. Instead, each project receives an income calculated separately per project and based on a series of parameters that take into account a plant’s “efficient operation.” 

Based on the latest law, subsidy payments “to renewable power plants, (especially wind plants), with certain age, almost disappear. For newer plants the new system pays the ‘recognized cost’ which is an amount to recover fixed cost and variable cost associated to capital cost,” Professor Ciarreta said.

Furthermore, renewable power plants are now obliged to compete with all other forms of energy in the wholesale market in equal terms. “All the units must go through the pool. Renewable units are not the ones indicated to be used as secondary or tertiary reserves. They sell as much electricity as they can. Clearly, units that benefit are those with low variable cost, while the price in the pool should remain low because of the overcapacity of the system” Ciarreta added. 

Most stakeholders agree that a new policy framework was needed to cut the deficit and establish regulatory stability. But critics say the reform didn’t result in a convincing restructuring of the country’s wholesale and retail energy markets, rather it is a patchwork that penalizes renewable power investments. 

A crucial question is how Spain’s energy mix will be decided. Given that the new renewable energy policy obliges renewable power plants to participate in the pool and compete in the wholesale market, one would expect market forces alone would drive the country’s energy mix but the latest government announcement indicates that the opposite is happening. The government will dictate the energy mix deciding the size and sort of installations. 

Specifically, the Spanish government appears to object to the disruptive nature of smaller, distributed solar PV installations in favor of the incumbents. But such policy aims are already outdated. The emerging new energy landscape worldwide is moving toward a decentralized power system that empowers the consumer and communities to make decisions on a level-playing field.

Critics say that Spanish energy policy lacks the long-term vision that will keep it up-to-date with the latest technological progress and encourage future investments in the most market-friendly way, decided by the consumer. Instead, the present policies, although by and large have abolished the renewable power subsidies, are subject to favoritism and lobbying, hindering consumers and businesses to make their own energy choices. 


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