Renewable Energies marketing models Spain

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 Feed-in-Tariff

Status Quo

In Spain, about 5 GW of renewable capacity was installed with feed-in tariffs until 2012. But because of certain planning mistakes of prior Spanish governments, no renewable energy levy was introduced. The resultant underfinancing of the electricity market led to the well-known tariff deficit of EUR 29 billion, which the Spanish state was only able to overcome by introducing retroactive tariff cuts. Since 2012, FiTs have no longer been granted to new power plants and the already granted FiTs were slashed by up to 30% under RDL 9/2013 and RD 413/2014.

 

Challenges

The secondary market is still very attractive to power plant buyers and sellers and bustles with trade. The regulatory risk has also been reduced due to the declining tariff deficit (while it was still EUR 26 billion in 2016, it has been gradually reduced year by year owing to excess electricity available on the electricity market). FiTs are paid in line with the installed capacity. In addition to FiTs, power producers receive compensation for the produced electricity (MWh) based on market prices (OMIE).  OMIE is the operator of the electricity market for Portugal and Spain (http://www.omie.es/inicio) that caters for daily trading of electricity in the Iberian Peninsula. A 100 kW power plant that was awarded support under the previous (already abolished) Real Decreto 661/2007 now receives about EUR 62,000 p.a. in additional support under RD 413/2014. This additional support is granted only if the power plant is productive for a certain time in the year. Additionally, the power plant generates revenue from the sale of the produced energy (assuming 164 MWh/year), which, assuming an electricity price of about EUR 50/MWh, leads to further revenue of EUR 8,400. Access to grid (road to grid) is obtained through the so-called market agent. 

 

Outlook

FiTs are no longer granted to new power plants in Spain but further auctions will possibly be organised for wind and solar, such as those held in 2017 and 2018, where the so-called floor price is auctioned, i.e. no full compensation, but a form of additional support added on top of the market price, in case the day-ahead market price (OMIE) permanently drops below about 31€c/kWh.

 Self-consumption

Status Quo

Until 2018, consumers were penalised for producing electricity for their own purposes as self-consumption was subject to the so-called sun tax (impuesto al sol) regulated in RD 900/2015 as a transmission fee for self-produced electricity and, if operated at all, such power plants were illegal. Since Sánchez government came to power, self-consumption has been strongly subsidised – on the one hand, the sun tax was eliminated and, on the other hand, administrative procedures were simplified. Additionally, new solutions were introduced such as the “0” balance system (under this system, electricity that is not consumed for the power producer’s own purposes and is thus fed into the grid is netted against the electricity drawn from the grid) and the possibility of collective self-consumption where different entities are associated within the same self-consumption system. The latter option, also known as on-site tenant electricity supply model [Mieterstrommodell], is used rather among homeowner associations (Comunidades de Propietarios), which are wide-spread in Spain.
 

Challenges

Self-consumption is still in its infancy and many suppliers of installation systems, both installers and energy consultants, are pouring into the market. However, compared to Germany, there are fewer single-family homes in large cities that would be suitable for self-consumption. In addition, it is difficult to secure a PV power plant for the financing bank if the land plot on which the power plant is installed is already encumbered with mortgage, because mortgage subordination, although possible in Spain, has not been popular with banks so far.

 

Outlook

Potential is enormous and self-consumption is subsidised by the (current) government. Favourable factors include not only Spain’s high solar radiation and (perceptibly) high electricity prices but also the readiness of Spaniards to save on energy costs. In 2018, 236 MW of PV capacity for self-consumption purposes were installed in Spain. For 2019, 400 MW are already planned (according to UNEF), whereas the total PV expansion will be between 3 GW and 4 GW in Spain.

 PPA

Status Quo

In 2017, a PPA for 50 MW was signed in Spain. Until July 2019, PPAs for 4,000 MW were signed (source: UNEF) and this pace of growth is expected to hold up for the remainder of 2019. PPAs are currently very popular in Spain because of the compensation structure for new renewable energy installations that trade their produced electricity only on the (volatile) electricity market. PPAs are currently offered by electricity traders both for wind and for PV power plants. The minimum installed capacity of eligible projects is about 30Mw(p) but PPAs are offered also for smaller wind farms, yet possibly on less favourable conditions.
Banks carefully scrutinise the offtakers, as smaller offtakers would not be able to economically shoulder the long contract periods amid possibly falling electricity prices and the PPA would then be futile. Therefore, what the banks check in the first place is the bankability of the offtaker.
At present, the most prevalent form of PPAs is the so-called merchant PPA. IPPs do see market opportunities arising from corporate PPAs, but this form of the PPA is not yet in demand among corporates, also because Spanish corporates are often not bankable.

 

Challenges

Audax is currently the largest player in the Spanish PPA market, with already numerous announced agreements to come. Further market players are Statkraft and local Spanish suppliers. There are nearly no regulatory hurdles in Spain. The market has been liberalised; only market access is regulated. The futures market is, however, not as liquid as other European markets yet and allows for maximally three-year contracts (as of now).
The PPA prices trend slightly below the current market prices and contract periods are between 10 and 15 years. Financial PPAs are still predominantly concluded because Spanish companies are not yet used to signing long-term energy supply agreements. Physical PPAs are not common so far due to their greater complexity.

 

Outlook

According to latest press reports, permits for grid connection points for wind and PV have been granted by REE for 66.4 GW and a further 30.3 GW have been denied so far. The market will thus grow strongly and so will the need to secure the revenue from the sale of electricity (“cannibalization effect”). Therefore, the market should grow for all types of PPAs to be able to guarantee the financing for all planned power plants. Politically, it is expected that the flood of applications and granted permits for grid connection points will be stopped by a relevant statutory act.

 Leasing

Status Quo

Because self-consumption has been expanded on a massive scale only for a good six months now, there are no findings about alternative financing options for PV systems in the small-scale system sector as yet. During the boom of 2007-2009, many 100kW power plants were financed by German lessors; this means that the projects are legally secure and an effective implementation has been ensured (registration of security).

 

Challenges

The rights of the lessor can be registered in the so-called movable property register (registro de bienes muebles) and are thus protected. Due to the retroactive cuts in feed-in tariffs in 2012, leasing companies have no longer financed renewable energy installations in Spain, but the market environment has improved as a result of the new framework conditions. 

 

Outlook

 Self-consumption is subsidised as a matter of state policy and, thus, immense market opportunities will arise also for alternative financing.

 Direct marketing

Status Quo

The situation is the same as in the lease model: Because self-consumption is still relatively new, there are no findings about alternatives as yet.

 

Challenges

Direct marketing –as an alternative to FiTs– has already become a reality in Spain and is implemented through trading on the power pool, OMIE. Because it is a regulated market, market participation is subject to certain requirements, but otherwise the market is liberalised.

 

Outlook

The potential for all types of renewable energy installations in Spain, either with or without storage systems, is huge. All types of marketing as part of self-consumption that have been successful in Germany will also be contemplated and tried in Spain. The consumer mentality may be different and so may be the legal framework, but all electricity consumers want to live sustainably and save money as far as possible.

 

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Christoph Himmelskamp

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+34 93 2172 076

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