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“Flawed” Spanish green tender a setback for green targets

Spain’s recent tender for renewables capacity is technically “flawed” and will result in only about a quarter of awarded capacity being built, a dangerous setback if Spain is to comply with binding green targets.

“The tender was just flawed throughout,” said one person familiar with the situation who asked not to be named, adding that at most, only a quarter of the awarded capacity will be installed because profits will be small at best. The European Wind Energy Association said it “was too small to satisfy demand and the country risks missing its 2020 target for renewables.”

Separately, other sources confirmed only a fraction of the awarded capacity would be built. The winner of the Jan. 14 auction, which awarded contracts to operators of 500 MW of wind power capacity and 200 MW of biomass, have until mid-March to process initial permitting hurdles, at which point the first dropouts might surface.

Current Spanish energy policy calls for 8.4 MW of additional renewables capacity by 2020 of which as much as 6.5 GW would come from wind power, with the binding target to supply 20% of energy from green sources by the end of the decade.


2018 start
“It’s hard to say how much [of the 6.5 GW wind power target] will be completed by 2020 but even if all agree on necessary reforms and there is ample policy support”, construction of the new wind farms will not start until 2018 and at best would add around 1 GW annually, said Heikki Willstedt, policy director of the Wind Power Association.

Spain’s interim government said in a statement on Friday the tender will help meet European targets “at the minimum costs to consumers”.

Bidders were awarded capacity based on the lowest investment and generation remuneration offered, with over a dozen participants bidding to build five times more capacity of wind power than the 500 MW offered.

The auction was the first of its kind in Spain and was certified by market regulator CNMC. It was also small compared to the investment appetite and followed a 4-year moratorium on new additions. A backlog of over 10 GW of wind power capacity additions in advanced planning has accumulated since early 2012, with some sunk capital investments as in the case of some projects.


Uncertain outcomes

There are no plans for new tenders, however, and little policy direction, especially after Spain’s hung elections in December that have delayed the formation of a government and could even lead to a new vote.

The tender itself lacked a pre-qualification process and gives the winners up to 2020 to deliver projects. Operating just to cover costs could be acceptable for some companies heavily vested in already well-developed projects, but are otherwise a risky bet.

Spain’s wind power farms operate at around EUR25 per installed MW and wholesale prices currently hover between EUR40/MWh and EUR50/MWh. But the margin is thin over the lifetime of wind park, especially as further reforms are expected to lower the EUR18/MWh price spread with the rest of Europe.

The powerful Samper family, which owns an industrial conglomerate, won the right to build 402 MW of wind capacity through Energias de Aragon, which got 300 MW, while Jorge Energy, a little known unit of a meat company, won another 102 MW, and EDP of Portugal was contracted to build the remaining 93 MW.

The Forestalia Group, which owns Energias de Aragon, also won 108.5 MW of biomass capacity, while paper industry giant Ence was awarded the remaining 40 MW.

A version of this was published in Montel