Can Sanchez lead Spanish renewables out of the desert?

IN DEPTH | Positive policy signals from Pedro Sanchez's minority administration could spell better times for Spain's clean energy sector

Spain’s new socialist-led government has signalled better times ahead for a renewables industry that spent years in the doldrums thanks to policies pursued by the previous administration, which collapsed last month following a corruption scandal.

Early indications are that the minority government, led by Prime Minister Pedro Sanchez intends to step up the country’s climate change efforts by introducing new policies designed to help Spain transition away from fossil fuels to a future based around renewable energy.

In addition to a symbolic decision to appoint a female majority cabinet, Sanchez merged the former Ministries of Energy and Environment into the Ministry for Ecological Transition, headed up by well-known environmental activist Teresa Ribera.

The renewables industry has welcomed the move, as the former ministries were often at loggerheads, with long and frustrating delays over clean energy policy causing much uncertainty over its future direction.

“This is a good development, as with the previous division it was very difficult to have an agreement between the two ministries about what they wanted to do,” Heikki Willstedt Mesa, director of energy policy at the Spanish Wind Energy Association told Recharge.

“For Spain this means we are finally coming out from this last period of seven years of inactivity. In terms of renewables, it has been like living in the desert because there has been nothing much going on. Yes we had three auctions held in the last couple of years, but this was just a ‘last resort’ tool of the previous government to try and comply with EU 2020 renewables objectives.”

Spain’s renewables progress came to a near standstill after the conservative people’s party (PP) government of former prime minister Mariano Rajoy in 2013 pushed through a chaotic energy reform, abolishing its feed-in-tariff system and replacing it with a support scheme based on “reasonable profitability” – effectively a profit cap on both new and old renewables projects.

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The retroactive nature of the changes brought Spanish renewables investments to a halt, prompting legal action against the government and forcing domestic players into overseas markets. What was at one point the world’s fourth-largest wind market, with 23GW in 2013, has since then only added a few megawatts.

But Spain’s renewables industry is daring to believe better days may at last be returning thanks to early positive signs from the new government. Spain, together with the new Italian government, set about “changing the narrative” on renewables pushing the EU to adopt an ambitious 35% target, while in the end agreeing to a 32% target for 2030.

Ribera has shown a much more assertive approach towards climate change than the previous administration, announcing that a Climate Change and Energy Transition Bill will be a top priority for the new government. A first draft of this law is expected to be announced by 1 August and to be sent to parliament before the end of the year.

In addition to its support for higher renewables targets, Ribera has also announced the government will scrap Spain’s controversial ‘sun-tax’, a levy introduced by the Rajoy government in 2015 on all self-consumption PV systems of more than 10kW.

“Spain’s new government is positioning the country to become one of Europe’s renewable energy leaders, with plans to accelerate its energy transition,” said Brian Gaylord, senior analyst for southern Europe and South America at consultants Wood Mackenzie.

“Key among the government’s plans is a proposal to phase out coal in power generation by 2025,” said Gaylord. “This is in contrast to previous government’s policy, and indeed coal plant closures are currently blocked if they are deemed to have adverse effects on power prices or competition.”

The new government is expected to take a much stronger line on closing down coal power, in line with socialist party policy which proposes shutting all of Spain’s coal-fired plants by the middle of the next decade. Much of the coal used at these plants is imported. “I don’t believe coal has much future,” Ribera has stated.

Spanish renewables giant Iberdrola indicated last year that it wants to complete the process of phasing out its thermal electricity generation worldwide by closing its final two coal-fired plants in Spain.

“We were discussing the matter with the former government but they didn’t reach a final decision, so I think the issue will again be on the table with the new government,” Javier Palacios, Iberdrola’s director of renewables in Spain, told Recharge.

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Gaylord said a nuclear closure plan – the country currently has 7GW of reactors – is also likely to form part of the new transition law as the government is reluctant to extend the lifetime of Spain’s existing five plants beyond 40 years. “This would mean a gradual shut down between 2020 and 2027.”

Spanish wind developers and manufacturers have welcomed the shift in political approach towards clean energy, but remain cautious until they have seen evidence of the changes being enacted. “The way to future growth in Spain is through well designed auctions,” Rafael Mateo, chief executive officer of Acciona Energia, told Recharge.

“The way auctions have been conducted over the last two years where price was not the driver was strange. However, we are encouraged by the fresh ideas emerging from the new government in having well-designed auctions in terms of a schedule and technology.”

Mateo said after a long period of instability there now needs to be clear rules about the predictability and stability of future auctions. “Having technology neutral auctions is not the way to go as wind and solar are not the same. We need very clear planning for the future in terms of volumes, technology, and commercial operation.”

Mateo said he believed “a new dawn is breaking in Spain for renewables once again after a long night. We now need to work towards the decarbonisation of whole Spanish economy”.

Palacios said Iberdrola, which has not been involved in Spain’s most recent auctions, could only invest in new projects if there was complete transparency on future incomes. “For us it’s very important to have that visibility for the long term.

“What the new government has said so far are all things that are good for us. So in that sense we have confidence in them and the messages they are sending out.”

Palacios said Iberdrola is currently progressing three big wind projects, with a total of 200MW of capacity, in Spain. This includes a project on the Canary Islands, expected to be commissioned by the end of this year, and other mainland projects due for start up by the end of 2019, or early 2020.

“We will also look to invest in photovoltaics under the same parameters that we invest in wind. We will look for profitable assets, and need long-term visibility and stable regulation in just the same way as for wind.”

"Commissioning by December 2019 creates huge stress on the supply chain in Spain."

Javier Rodriguez, director of renewables at Endesa, said in the past the main companies in Spain had developed wind farms, but not the grid or necessary infrastructure. “We have to develop projects with new technology. We need a combination of projects using wind energy, PV and storage.”

Manufacturers also raise concerns over the current auction system in Spain, which they believe is not well planned and is placing a lot of concentration on complying with commissioning new projects by the end of next year.

“The current system is putting a lot of stress on our ability to deliver by 2019,” said Victor Equisoain, chief executive for Latin America & Africa at Nordex Acciona Windpower.

“Commissioning by December 2019 creates huge stress on the supply chain in Spain,” said Enrique Pedrosa, chief executive of southern Europe & Africa at Siemens Gamesa. “For instance we have used a lot of the large crane capacity in Europe, and if we are to grow more we will have to take large cranes from countries outside Europe.”

To overcome the current bottlenecks the renewable industry is calling on the new government to hold annual tenders for 4-5GW of new capacity, out of which wind would account for 1-1.5GW each year. This would mean an additional 10GW-15GW of Spanish wind power would be added between 2020 and 2030.

“We are going to support renewable energy for the transition to a more sustainable renewable world,” said Jose Dominguez Abascal, who has taken over the reins as energy secretary at the new Ministry of Ecological Transition.

Abascal, who has led one of Spain’s highest-profile renewables developers Abengoa, has assured the industry that the government is “going to do everything necessary to make sure we have the right regulations and rules in place”.

However, Gaylord points out that the government’s proposals will most likely face opposition – especially as the governing socialist party is in a minority position within the Spanish Congress – meaning that a consensus must be negotiated.

“Yet for a country which already generates more than a third of its electricity from renewable sources, these announcements send a clear signal on the direction of Spain’s energy mix.”

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