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Wind pact in Spain brings more relief than unease

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The agreement reached on 2 July between the Spanish Wind Energy Association (AEE) and the Ministry of Industry may involve a retroactive cut of 35% to the premium paid for the output of 25% of the Spanish wind energy industry, and could also break the promise of economic stability that attracted investments in its day. However, it should also bring long-term visibility to the sector.

The pact has therefore been greeted with enthusiasm by stock market investors. At the end of the meeting of Monday, 5 July, the value of listed renewables companies experienced a very marked rebound with increases of 7.39% in the case of Acciona’s shares, and 5.06% in the case of Iberdrola Renovables. Market analysts, Renta 4, also suggested that if the agreement is ratified in the coming days, "it would eliminate the regulatory risk that has been weighing heavily on the renewables sector".

Pending a detailed public statement, the AEE has merely stated that "the wind energy sector has made an effort to become more responsible in light of the current situation in exchange for greater regulatory stability." Specifically, the agreement marks a reduction of 35% in the benchmark premium only applicable to those installations covered by Royal Decree (RD) 661/2007, starting from 1 January 2008. It is estimated that this change will affect about 25% of Spain’s wind capacity.

The reduction will take effect once the agreement is given final approval and will run until the last day of 2012. Thereafter, the premium will revert back to current values established in RD 661. Any new capacity connected from 1 January 2013 will be subject to a new regulation that has not yet been drawn up, although the Ministry has revealed that it will permit "reasonable" rates of return. The Ministry therefore says that "this agreement also enhances the visibility and stability of the regulation governing these technologies in the future, guaranteed the current premiums and tariffs established under RD 661/2007 for facilities in operation (and those included in the Register of pre-assignation of remuneration) as from 2013".

A hundred million in savings for the system?

In addition, several industry sources have suggested that the limited cut will not have a significant economic impact for the following reasons: the benchmark premium only comes into play when the wholesale electricity market price reaches €45 per MWh. Currently, the market price is below this figure, and therefore, according to RD 661, wind energy covered by the special regime only receives a floor price of €75.1 MWh. "We do not charge the market price plus the premium until the market price exceeds €45. What we have been receiving for some months now is simply the minimum price set by RD 661," one wind farm operator said, adding that: "The cuts will not take effect until the market exceeds €45".

Therefore, one AEE member estimates that based on market forecasts, it is unlikely that the €100 million quoted by the government will be saved by the electric system as a result of the pact. "In euros, this is not going to affect us. In terms of our image however, it will affect us. While the cut is only small, it goes against the supposed guarantees established by RD 661 – safeguards against returns being affected by political interference – which sets a dangerous precedent in terms of attracting new investment".

Only 5% of the tariff deficit is due to the wind sector

According to the AEE, the wind sector is only responsible for 5% of the tariff deficit and therefore can not be "either the cause or the solution” thereof, said José Donoso, President of the wind association, a few weeks ago. In any event, according to Iberdrola’s Chairman, Ignacio Sánchez Galán, the pact brings visibility and stability to the sector following the freeze on new investment over recent months.

The agreement has also resolved the impasse regarding the 300 MW of wind capacity installed before last year’s call for inscription in the Register of pre-assignation of remuneration which did not get registered. Now, these facilities may choose to sell at market prices without the premium from when the new regulations come into force and then collect a feed-in tariff as from 1 January 2012; or, alternatively, to sell to the market as from the date the new regulation takes effect and charge the market price plus a premium from 1 January 2013. Additionally, the agreement provides for a special call for 160 MW of pilot/R&D wind projects, which will be included in the 2012 quota.

For additional information:

Spanish Wind Energy Association

Spanish Ministry of Industry

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