March 24 (Bloomberg) -- The Spanish government is considering increasing subsidy payments to under-used gas-fired power plants to deter utilities from shuttering them, according to two people briefed on the discussions.
The government is concerned that unless the return on the plants increases, utilities including Iberdrola SA and Gas Natural SDG SA may mothball their facilities, said the people, who asked not to be named because the negotiations are private.
Power subsidies paid by European governments have attracted the attention of the European Union’s regulatory arm because they risk breaching EU rules in state aid. In Spain, Prime Minister Mariano Rajoy has spent more than two years trying to untangle the state-backed system of subsidies, fixed prices and auctions that have together racked up 26 billion euros ($28 billion) of debt.
A spokeswoman for the Energy Ministry didn’t respond after three calls and an e-mail seeking comment. Spokesmen for Iberdrola and for Gas Natural declined to comment.
Spain’s gas-fired plants have been pushed to the margins of the electricity market after the previous government of Jose Luis Rodriguez Zapatero spurred the development of wind and solar power. During Spain’s economic boom in the first years of this century, generating capacity grew to over 100 gigawatts, compared with peak demand of about 40 gigawatts, leaving many plants struggling to sell their electricity. Power demand has declined in four of the past five years.
Increasing payments for combined-cycle gas-fired plants would provide a boost to Iberdrola and Gas Natural, while complicating the government’s efforts to rebalance the system’s finances. The annual revenue shortfall reached about 4 billion euros last year when the government pledged to eliminate it.
Gas-fired plants, which can only sell to the grid after all the available renewable power has been taken, account for 25 percent of the generating capacity in Spain but only 11 percent of production. Output from gas-fired plants dropped 32 percent last year, according to Red Electrica Corp. SA, the grid operator.
Plant operators receive so-called capacity payments from the government-controlled power system as an incentive to keep the generators available while they aren’t being used. Closing gas-fired plants would reduce the amount of backup generating power available at times when the output from wind and solar plants drops.
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