Spain ushers in new era of subsidy-free wind power

Author: Jon Stibbs

2016/01/15

A new era of zero subsidy for Spain’s wind power sector looks to have been entered following Thursday’s auction of 500MW of wind and 200MW of biomass electricity generation capacity, according to a spokesman for utility Iberdrola which was among the unsuccessful bidders.

This would make Spain one of the first – if not the first – country in Europe to attempt to develop a subsidy-free segment of its wind power sector.

Participants bid into the government-led auction to develop new capacity at the lowest cost. In the case of wind power, all the capacity was acquired at bids of zero – meaning no financial support will be required.

As a result the winners have committed to provide wind power at the free electricity market price, assuming they are actually able to build the projects free of support.

The big winner was Forestalia, which reportedly won 300MW of wind and 108.5MW of biomass. However there has been no official acknowledgment of the winners from the energy ministry or OMIE, the market operator that arranged the auction.

“We had our best projects lined up but we were disappointed,” said the Iberdrola spokesman. “Hopefully this is the start of a new era,” he added, in reference to the zero subsidy winners.

Other major players, such as Gas Natural Fenosa and Enel Green Power, also reportedly failed to win capacity.

Caution

However, some parties remained highly sceptical. Spain’s wind power association AEE cautioned the auction’s clearing price was so low that it did not fairly represent the sector.

This price, the group inferred, was only achieved because of the relatively small amount of capacity on offer, which means the further up the bid stack you go, the less chance of landing some capacity you have. In this extreme case, only the zero bids were successful.

Instead, AEE called for a far larger auction of 5.9GW before the summer in order for Spain to be able to meet its EU renewable power goals for 2020. It also urged the government to introduce new regulations for the sector.

It remains to be seen whether wind power can be produced profitably without state support. Although turbine costs have fallen, which would bring down costs of wind power, the fuels complex is extremely bearish, meaning the power price – income for wind farm owners – is very low.

The auction was more than five times oversubscribed, which the energy ministry said was a signal of investors’ interest in Spain’s renewable sector.

A spokesperson for Gas Natural Fenosa said only: “Despite the final result, our company remains fully committed to the development of renewable projects.”

Test the appetite

This was the first auction of renewable capacity since 2012, when the government declared a moratorium on offering support for renewables.

The energy ministry has declared this auction was intended to test the appetite for later auctions of larger capacity, in,line with AEE’s wishes. However, if companies are prepared to provide wind power assets with zero state support it means there is little reason to wait for auctions before providing capacity.

Still, assuming larger auctions would see prices comfortably higher than zero, it appears there remains appetite for future events. “We are optimistic that this auction opens the window to further auctions and more capacity,” said the Iberdrola spokesman.

A spokesperson for utility Viesgo, which did not take part in Thursday’s event, said it was analysing the possibility of submitting an application for future auctions. jon.stibbs@icis.com