BACKFILE: Renewables' pain in Spain
Spain posted two records last year. One is good news for renewables and one is disastrous.
The good news is that, for the first time, wind power was the country’s top source of electricity, with 20.9% of all power produced.
The bad news is that only 175MW of new wind capacity were installed in 2013, the lowest annual amount since 1997. Figures for solar power were equally disappointing, and estimates point to a virtually dead market for wind and solar in Spain over the next couple of years.
After being the shining star of the renewables world for so long, how has Spain come to be the basket case it is today? And how do its major renewables players cope with the collapse of their home market?
The collapse of renewables in Spain is largely due to the conservative government of Mariano Rajoy, which over the past two years has pushed through an almost incomprehensible myriad of laws and rules in a chaotic energy reform.
Last summer, Madrid abolished its feed-in-tariff (FIT) system and replaced it with a support scheme based on “reasonable profitability”, a kind of profit cap for renewables projects — both new and old. Also introduced last year was a 7% tax on power generation and another levy on those generating their own energy, plus a host of other measures.
The Spanish wind power federation, AEE, has labelled the new regulations “the most damaging rules ever enacted against the wind sector in any country”.
The retroactive nature of the cuts, and the still-to-be-finalised profitability level means that Spanish renewables companies have had difficulties calculating their 2013 results.
“If the reform goes ahead as planned, the future of the industry in Spain is up in the air as there won’t be a home market any longer,” Luis Polo, the AEE’s general director, tells Recharge. “No more wind power will be installed in Spain. And the big manufacturers will move their production closer to their clients.”
To understand why the government would make such cuts, two factors are key. One is the depth of the recession that followed the 2008-09 global financial crisis and the other is the irresponsibility of previous governments’ energy policies.
Successive administrations were so fearful of upsetting potential voters that they did not increase state-set electricity prices, even as the cost of production was rising. This has led to the accumulation of the so-called “tariff deficit”, which is now approaching a dizzying €30bn ($40.9bn).
The Rajoy government considers the almost complete halt of renewables expansion as a welcome side effect, as energy demand has plummeted during the recession and is not expected to recover for several years.
Yet, when new capacity is eventually needed, Spain’s renewables industry might not be there to provide it.
The past couple of years have already left their mark on the industry, but the situation is likely to get worse.
At the end of 2013, 27,000 jobs were left in Spain’s once-mighty wind industry, down from 40,000 in 2008, according to the AEE. Last year alone, nine factories — which built everything from blades to towers and gearbox components — were closed down. Foreign and Spanish companies have had to axe jobs.
Major Spanish renewables companies such as Iberdrola, Gamesa and Acciona have been left reeling.
Spain’s largest wind-power producer said the regulatory and fiscal changes sliced a staggering €801m off its operational profits in 2013.
But, like other players in Spain’s embattled renewables sector, the utility does not know the exact magnitude of the bloodshed. “We’re still assessing the impact of the energy reform,” Iberdrola Renovables chief executive Xabier Viteri tells Recharge. “Not everything has been approved yet, so we can’t make a precise calculation of those impacts.”
The measures will force Iberdrola to seek its luck even more in markets that have transparent and stable support rules, particularly in countries where it is already well-established, such as the UK, US and Brazil.
Iberdrola is also building up an important offshore wind pipeline, including the 400MW Wikinger project in the German Baltic Sea, which it expects to make a final investment decision on in the first half of this year.
“One thing is clear,” Viteri says. “In Spain we won’t build any wind parks in the short or medium term.”
Energy and infrastructure group Acciona has followed a similar path. Spain’s second-largest renewables operator, with almost 6GW in capacity, did not invest in its home country last year and will not do so in 2014. Even before the worst of the regulatory changes became known, its energy arm, Acciona Energía, cut 119 jobs across Spain, more than 7% of its staff there. It also cut spending by almost half in the first nine months of last year to €166m, all of which went overseas.
“We’ve done very well in South Africa and South America,” Acciona Energía chief executive Rafael Mateo tells Recharge. “I see a very promising future in Latin America, from Mexico to Chile.” Acciona is already the leading renewables operator in Mexico, with installations of 550MW.
Although 95% of its activities are in energy production, Acciona builds its own 1.5MW and 3MW turbines, and has a growing EPC business.
Aside from its two nacelle plants in Spain, Acciona already has a turbine factory in the US, and expects to open a plant in Brazil this year.
Spain’s leading wind turbine maker has had to take drastic measures to survive, shedding more than 600 employees in the past 15 months, closing the Albacete and Tudela blade factories, and downsizing production at other factories in the country.
Gamesa chief executive Xabier Etxeberría says that with almost no new wind parks being developed in Spain, he sees O&M services that prolong the lifespan of existing wind farms as a new business opportunity. But it has been clear for some time that the company had to expand overseas.
“Currently, more than 85% of Gamesa’s sales come from outside Spain,” Etxeberría tells Recharge. He points to Brazil, Mexico and India, where the markets are expected to grow at more than 10% a year over the next four years. “In those countries, Gamesa has a solid position and is among the four major manufacturers,” he says.
During the third quarter of 2013, Latin America accounted for 51% of Gamesa’s sales, with India contributing 18%.
Downsizing its Spanish manufacturing, while pushing ahead with its globalisation strategy, is paying dividends. During the first three quarters of 2013, Gamesa posted a net profit, and will likely do so for the full year, reversing a €656m loss in 2012.
Smaller wind companies
But while large manufacturers and major utilities have the financial strength and the know-how to shift their activity abroad, the path is a much harder for players further down the supply chain.
To alleviate the pressure for small and medium-sized companies in the wind sector, the AEE has been organising events to help them set up projects or manufacturing abroad.
“We’ve done events on Australia, Canada, Finland,” Polo says, adding that they were met with great interest and will be followed by similar events on Morocco, Turkey and Mexico.
Many foreign investors are seeking to bring legal action against the Spanish government over the support cuts.
Munich utility Stadtwerke München (SWM) and Essen-based RWE are among companies that may sue over losses incurred at the Andasol 3 solar-thermal plant in southern Spain. SWM, which owns 50% of the project, has already written off €64m of the facility’s book value. RWE also got burned by investing in almost 500MW of wind power across Spain.
“We are concerned that Spanish politicians plan deep cuts to support guaranteed long ago, and retroactively,” RWE chief executive Peter Terium said at a recent energy conference in Berlin. “With that, the energy sector [in Spain] has become uninvestible.”
Abu Dhabi-owned renewables company Masdar filed a complaint against the Spanish government last month at the Washington-based International Centre for the Settlement of Investment Disputes, part of the World Bank Group. It owns a stake in the 19.9MW Gemasolar concentrating solar power plant, commissioned in 2011 near Seville.
Several investment funds are also seeking compensation from Madrid at the International Court of Arbitration, according to the Spanish PV federation UNEF, including AES Solar, Isolux, Charanne Construction Investment, Ampere Equity, HG Capital and Impax.
Several Spanish regions such as Murcia, Andalusia and Extremadura are also suing the government at Spain’s constitutional court.
With a wave of litigation, the Spanish energy reform is slated to keep the courts busy for years to come.
Many things could change in that time. A new government after elections in 2015 may adopt different policies, and energy demand is likely to pick up again as Spain slowly emerges from its economic crisis. But for many, that will come too late.
As Viteri says: “I see a very dark future for renewables in Spain.”