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Auctioning 3,000 MW of installed capacity in Spain. Publication of draft laws on 29/12/16. An auction round to be held yet in the first quarter of 2017.

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​In a nutshell:

After a four-month moratorium, the Spanish administration is apparently revisiting the issue of incentivising renewable energy. According to the latest legislative plans, an auction is to take place yet in the first quarter of 2017, and overall 3,000 MW are to be auctioned in 2017.

The reason for changing the course of action are apparently the guidelines from Brussels according to which renewable energies should have a share of 20 percent [in the energy mix] by 2020. Currently, Spain achieves only 17.4 percent. According to the draft of the law, companies from all sectors of the renewable energy industry may participate in the planned auctions, i.e. both wind power and photovoltaics and biomass and biogas.

 

Following the auction held in January 2016 in Spain, during which 500 MW of wind power were sold without any incentives and which was harshly criticised for this by RE associations, the Spanish Ministry of Industry issued a response and announced that a minimum incentive rate would be guaranteed. The structure and the guaranteed rate of the minimum incentive will be regulated in the implementing regulation for the auction, which will be published alongside the upcoming auction.

 

The criterion for being awarded a contract is the percent discount offered by the bidder on the standard investment value prescribed by the Ministry of Industry. The draft of the law currently reads that the standard investment value per 1 MW of installed photovoltaic capacity will be EUR 1.2 million and the annual remuneration for such investment will be EUR 47,854 per 1 MW of installed capacity in 2019. Contracts will be awarded to power plants which will offer the highest discount on the value of the initial investment (and thus on the annual remuneration). If a 1MW photovoltaic power plant was awarded a contract for a 0 percent discount, such a power plant would receive – in addition to the electricity market price per kWh – an additional remuneration of EUR 47,854 in 2019. In line with the percent discount, the annual additional compensation decreases.  The additional remuneration is paid irrespective of the produced kWh and is said to ensure the profitability of RE projects.

 

The Spanish administration is planning to conduct a so-called marginal auction where all power plants with awarded contracts receive remuneration offered by the power plant that is the last to be awarded the contract. For example, a contract is awarded to the last bidder who offered only a 20 percent discount. In such case, all bidders who were awarded a contract would be paid remuneration based on a 20 percent discount even if they submitted bids for higher discounts.

 

In this process, wind and solar power and other technologies are evaluated on equal footing. As for wind power, the Ministry of Energy has set the initial investment value for a standard wind turbine also at EUR 1.2 million and for other technologies at EUR 2 million per MW of installed capacity. This means that wind and solar power are in the same shoes when it comes to their starting positions at the auctions and the contracts will be awarded to those producers who will offer prices more advantageous for the Spanish electricity market. The operating life is set at 25 years for both wind turbines and photovoltaic power plants.

 

At the time of submitting tender documentation, bidders are not required to describe specific projects there yet; it is enough that they submit their bids for a notional volume of MWs in any technology of their choice. Information about the specific project must be provided within 6 months of the date of entering the fact that the bidder was awarded a contract in the appropriate register.

 

To be eligible for participating in the auction, the bidder must file a bank guarantee, but its amount is yet to be determined in the implementing regulation. Nonetheless, according to the draft of the law, the bank guarantee has already been set at 60 EUR/kW to be filed within 45 days of the date of the contract award and to be released depending on the planning and construction progress. The deadline for putting power plants into operation is 31/12/2019.

 

This again creates opportunities for the German renewable energy companies in the Spanish market.

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