Spain's Council of Ministers estimates a new renewable energy law could provide a €90 billion boost to investment in the next decade, helping the country achieve a 74% share of renewables in its electricity mix by 2030.
Spain's government has passed a new law that aims to tidy up a swelling backlog of renewable energy grid connections and confirms a round of auctions for new capacity, among a number of other measures designed to help the nation achieve 100% sustainable electricity by 2050.
The law, which came into effect June 24, will make renewables the central pillar for reviving the economy after three months of coronavirus restrictions, the Ministry of Ecological Transition said.
"It's a fact that renewables are now the cheapest source of electricity generation," Minister Teresa Ribera said.
This means they can be used to increase competitiveness as well as to develop and modernize industry, while creating sustainable employment and countering climate change, she said.
Besides the grid connection and auctions, the legislation addresses financial balancing of the country's tariff deficit, which looks set to grow again after the slump in demand caused by the coronavirus pandemic, and a new price regime to buffer cogenerators from a repeat in market conditions caused by plummeting demand.
Centralized aggregation and storage are also addressed in the new law while there is scope for renewable hybridization, allowing different technologies to use one site to save costs and environmental impact.
However, the main impact will be to burst a speculative bubble that has grown around grid connections, setting off a secondary market where projects with connections were being sold for up to €150,000/MW, according to market sources.
The government said that the new law will allow a clean-up of up to 430 GW of grid access applications that have been filed in the last 16 months.
The price of a photovoltaic, or PV, panel has fallen 80% in the last 10 years and the cost at which it can sell energy by 94%, Ribera said. The resultant grid parity has lured international investors into Spain's merchant market with the possibility of selling green energy to domestic or other European consumers.
However, the bubble of grid permits has seen some promoters amassing grid connection agreements without the intention of building the capacity.
The 430 GW of applications that have been made and 136 GW that have been approved access, dwarf the approximately 50 GW of new wind and solar required to meet Spain's 2030 National Energy and Climate Plan targets.
The new law intends to clear the backlog by introducing an obligatory five-step process that each promoter must pass or risk losing its connection permit with immediate effect. There will be an effective cut-off if a project has not started within five years of its initial submission.
The five steps are submission to the appropriate administrative authority, favorable environmental impact assessment, administrative pre-authorization, administrative building permit and generating permit.
However, the new law will also effectively mean a three-month moratorium on the issuing of new permits until the regulation is approved by Congress and the regulator. According to the ministry, the grid operator is receiving around 30 GW of new proposals each month.
Auctions confirmed
The other side of the strategy to bring order to the sector is the confirmation of a round of auctions, although a previously proposed 3 GW-per-year limit has been dropped.
The new system will offer the promoter a long-term energy price for either the energy sold or the installed capacity, or a mixture of both. "This will allow participation with standardized conditions while the consumer will benefit from the savings that derive from renewable generation," the ministry said.
There will be a different model for each technology, be it wind, solar, hybrid projects or battery storage, with the aim of holding the first round in 2020. Smaller generators of an unspecified size will not need to compete in the auctions to receive the retribution, however, in line with EU norms.
The new system will substitute the previous one, designed in 2013, which was introduced when renewable energy generating costs were higher than wholesale prices.
The government estimates that as much as €90 billion in investment could result from the new law in the next decade, with Spanish industry benefitting from the transition.
The country's industry has the capacity to build 10% of wind installations, 65% of solar and 90% of the equipment required to digitalize the network and guarantee the integration of renewables in the system, according to the ministry.
The law has also been written with the implications of the coronavirus pandemic in mind, and therefore addresses a forecast shortfall in system revenues and also allows changes retribution regime for cogenerators and others, whose subsidized rates have been affected by the slide in wholesale prices and CO2 emissions rights.
A surplus of around €1.5 billion accumulated in recent years will be made available to offset an expected deficit that could accrue in 2019 and 2020, while the cogeneration industry will be allowed to offset the reduction in power and CO2 prices during states of alarm.
Spain's goal is to increase the contribution of renewables to total Spanish energy requirements to 24% in 2022, 30% in 2025 and 42% in 2030. This translates to an addition of 12 GW of renewables in 2020 to 2022 and 25 GW in 2020 to 2025.
"Spain has always been a climate change transition leader, being an early supporter of renewables, with 2050 plans in place and a commitment to net zero [carbon emissions]," said Meike Becker of brokerage Bernstein. "This acceleration is expected to create between 107,000–135,000 jobs in a country where 90% and 65% of wind turbine and solar PV components are manufactured locally."
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.