Valdeporres onshore wind farm in northern Spain. Operators of Spanish wind assets built pre-2005 are set to be affected by a proposed law to claw back profits made by zero-carbon assets. Source: Iberdrola SA

Europe's wind power industry has pushed back against a planned Spanish law aimed at clawing back profits made by zero-carbon assets built before the creation of the EU Emissions Trading System, Europe's carbon market.

The law, proposed June 1 and under consultation until June 10, will apply to hydro, nuclear and wind plants built prior to 2005. Lawmakers argue these plants have benefited unduly from higher power prices, which have risen in Spain and across Europe more generally in part because of spiking carbon prices.

Most affected by size would be hydro plants, for a capacity of about 13.6 GW, or 80% of Spain's installed capacity, and the country's entire 7.3-GW nuclear fleet. Some 1.5 GW of older wind farms that no longer benefit from government support would also fit the criteria.

Trade body WindEurope said that power price dynamics are "very complex" and cannot be attributed solely to rising carbon prices. "WindEurope is extremely concerned about these plans. ... On the face of it, the proposed measure should not apply to wind energy," the group said June 2.

Spain's Ecological Transition Ministry said it plans to apply the deduction by calculating the benefit the plants receive from higher wholesale prices in the market. Assuming CO2 prices of €50/tonne, the financial impact would be €1.05 billion annually, according to a document published June 1 by the ministry.

"This windfall income that older plants receive for CO2 they did not emit was not taken into consideration during the initial moment of investment (prior to 2005)," it said.

Additionally, due to the characteristics and environmental conditions of the affected nuclear and hydro plants, they are not open to direct competition, meaning no new nuclear or large hydro plants could be constructed to compete with them, the ministry said.

'Counter to logic'

Endesa SA and Iberdrola SA are set to be most affected by the plan and declined to comment June 1. Onshore wind, in particular, will pay more than the benefit it receives from higher CO2 prices because CO2 incidence is likely to be lower when wind output is higher, RBC analyst Fernando Garcia said in a June 1 note.

Some 90% of the income from CO2 not emitted would be used to finance renewable energy subsidies, with 10% to fight energy poverty. The measure is compatible with EU and domestic law, the ministry said, adding that it will save domestic consumers 5% on their bills and industrial groups 1.5% on their energy costs.

CO2 pricing is meant to support the expansion of wind and solar, WindEurope said, arguing that the plan "runs counter to logic." The group said the government is "moving goalposts" and the plan would send a negative signal to those planning to invest in renewables in Spain, shaking confidence in the market. "A measure such as this which risks undermining investment in wind is plain wrong," WindEurope said.

Europe's power sector trade body also spoke out against the plan. Eurelectric Secretary General Kristian Ruby said May 28 that the possible legislation "highly concerns the power sector since it would introduce regulatory instability and distort proper market incentives to invest not only in future renewables, but also to operate existing non-emitting assets."

"It basically means that generators would be double-charged, putting their revenues and ability to invest in new generation capacities at risk," Ruby said.

Gianluca Baratti is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.