Electricity Rates Taking Effect for Spain’s Clean Energy

Spain capped rates for electricity suppliers that use renewable energy sources, waste and co-generation based on a “reasonable return,” formally ending a subsidy system that had spun out of control.

The Industry Ministry today published the new formulas and tables to be used for generators ranging from wind turbines to solar plants and waste incinerators in a 1,761-page regulation that takes effect tomorrow. Each plant will need to apply to qualify for the new lower rates, which aim to guarantee pretax returns of 7.4 percent to 7.5 percent over their lifetimes.

Spain became a world leader in clean-energy, spurring projects by awarding more than 50 billion euros ($68 billion) in subsidies in the last 25 years. At the same time it failed to secure all the money needed to fund the incentives, which accelerated to reach about 9 billion euros a year in 2013 as clean energy covered a record 30 percent of power demand.

The system, modeled on Germany’s in the 1990s and paid for mostly by consumers, was increasingly attacked as an unacceptable burden by utilities, some consumer groups and the government. An energy reform bill last year and a June 6 decree have dismantled it, aiming “to achieve an economic and financial stability of the electric system and avoid the incorporation of new costs,” the government said today.

Wind Returns

Today’s ministerial order is almost the same as the draft unveiled in February and wind energy remains the most penalized technology, according to Spain’s wind lobby group Asociacion Empresarial Eolica. Under the new parameters, wind farms installed before 2004, or 28 percent of the total, will not receive any more subsidies, it said.

“The proposed rule changes are retroactive and discriminatory, violate the principles of good regulation and are a serious attack on legal certainty,” Luis Polo, AEE’s general manager, said by e-mail today.

The new rules will cut the payments for most renewable energy plants and bankrupt many, lobby groups say. In the case of solar thermal power generators, they will reduce average revenue by 15 percent, cutting in half what investors expected to earn initially, lobby group Protermosolar said today.

Capped Payouts

The order defines the more than 1,500 standards that will allow each generator in Spain to earn what the government calls a reasonable return. This return, which can be revised every six years, is based on a premium over Spain’s 10-year sovereign bond yield. It is set until the end of 2019 at 7.4 percent for co-generation plants and 7.5 percent for the rest.

Plants will need to register within 45 days and will only know exactly what they can earn following a competitive process that will be described in a future decree, the document shows. Monthly payments will top up what generators can earn from sales on the open market so the target returns are reached.

Most parameters used to calculate the new payments, including wholesale power prices and operating costs, can be revised every three years, except a plant’s initial investment cost and operating life. This operating period is set at 30 years for photovoltaic plants, 20 years for wind and 25 for most other technologies.

The new rules will cut payments to clean energy and co-generation plants by 1,700 million euros ($2,300 million) this year, government regulator CNMC estimated in April. Spain has more than 60,000 solar installations with almost 7 gigawatts in capacity and about 23 gigawatts in wind farms, according to Bloomberg New Energy Finance.

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