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Is a new renewable energy bubble looming in Spain? Draft laws regulating the allocation of feed-in points

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Article published on 9th December 2019

 

According to press releases, a new renewable energy bubble is looming in Spain. Applications for the allocation of grid connection points for 163 GW have been submitted.

 

More specifically, transmission grid connection points for 66.4 GW of wind and solar energy were allocated by September 2019. By comparison, only 28.9 GW of wind and solar power were connected to the grid as of 31/7/2019. An interesting feature is also the fact that in July 2019 alone, network operators received grid connection applications for 18 GW, as a result of which the applications submitted by September covered a total of 66.5 GW. All these data were published by Red Electrica de España, SA (REE). Furthermore, network operators rejected applications covering a further 30.3 GW because the grid connection points or the grid were not prepared to take up the capacities applied for. All in all, the above-mentioned 163 GW of renewable energy are to be introduced into the Spanish market.

 

One does not have to be a clairvoyant to see that the market is overheated to a certain degree. The question is, of course, how it is possible that in some cases very average project developers could apply for pipelines that covered grid connection points for several 100 MW, considering the fact that a bank surety of EUR 40 per kW had to be provided. With a project of 50MW, this very quickly mounted up to a bank surety of EUR 2 million. Insurance providers have discovered a market for themselves  offering bad debt insurance products as a substitute for bank sureties, with branches of Eastern European insurance companies issuing sureties that run into millions in some cases. Typically, the debtor is a SPV with a share capital of EUR 3,000 and often even the parent company does not bear any joint liability. One can easily imagine what will happen if at some point  such projects are not connected to the grid and the Spanish state decides to use the sureties.

 

The regulatory authority CNMC has already recognised this problem. But due to the power vacuum that has plagued Spain for some years now, no measures have been taken apart from drafting some laws or proposing new administrative regulations. In a draft circular of CNMC published in July 2018, some ideas were discussed on how to get the flood of applications under control but, as stated above, in the absence of an effectively functioning government, the measures have ended up in drafts.

 

Another issue is the impact of the massive expansion of renewables on the Iberian electricity market. Spain has set itself the goal of generating 100% of the required electricity from renewable energy sources by 2050 and, in light of this, the most recent figures on the expansion of renewables are of course a solid basis for reaching this goal. But whether this expansion will go hand in hand with power grid security and how the cannibalisation effect will affect electricity prices is a different matter.

 

REE and OMIE (market operator) relentlessly emphasise that the grid is secure and that prices will stabilise due to higher demand. Let’s wait and see.

 

But it is rather quite certain that the currently forced-through prices for project rights to PV power plants and wind turbines will decline over the next months due to increased supply. According to press releases, many installations that won auctions in 2017 will not be operational byl the end of 2019 (or March 2020). If the deadlines are not extended by the responsible ministry, it will be interesting to see how these projects will be further implemented, since, in the absence of a guaranteed off-take price, some external financing arrangements are likely to collapse. It is therefore possible that some wind power and PV projects will change their owners.  

 

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