These plans are seen by market participants as aggressive, but achievable – and a long way from the start-stop history of renewables in Spain, which resulted in generous feed-in tariffs being cut retrospectively, raising the ire of investors and developers.
While the Government had planned auctions for the end of March, these have been delayed because of COVID-19. However, a large proportion of the growth in renewable energy is expected to be delivered by merchant plants, given the increasing cost-competitiveness of wind and solar technologies.
COVID-19 impacts
Spain has been hit hard by COVID-19. As is the case elsewhere, pressure on international supply chains and difficulties moving key staff around will delay construction on some projects. However, the Government gave exemptions to developers to continue working on some renewables projects during the shutdown, and manufacturers with Spanish operations – such as Vestas, Siemens Gamesa and LM Wind Power – resumed production after a two-week halt.
Of bigger concern to developers, particularly of merchant projects, is the impact of the economic lockdown and any subsequent downturn on power prices. Wholesale power prices in Spain’s pool were down 63% year on year in early April. However, futures prices are recovering, signaling that the market sees the impact as short-term.
Meanwhile, flagship Spanish energy companies have signaled their determination to continue investing in renewables. Iberdrola, for example, unveiled a “global action plan” in response to COVID-19, including a commitment to accelerate its €10b investment plan. Endesa is also continuing with its planned increases in renewables capacity.
Low power prices do, however, make it challenging to sell corporate power purchase agreements (PPAs) to local buyers. Most domestic buyers are driven by near-term cost, rather than sustainability considerations or the advantages of using PPAs to lock in long-term power prices – current low pool prices provide an attractive opportunity to do so.
At the present time, many PPAs are sold to corporate buyers outside of Spain. For example, Amazon has entered into PPAs with two Spanish projects, the latest being a 50MW solar farm in Aragón. In December, energy trader Statkraft entered into a 10-year PPA with five solar projects, totaling 252MW, while Heineken has struck a deal with Iberdrola to support a new 50MW solar plant in Andévalo, and AB InBev has signed a 10-year virtual PPA for 130MW of solar power to cover its pan-European operations.
Meanwhile, flagship Spanish energy companies have signaled their determination to continue investing in renewables. Iberdrola, for example, unveiled a “global action plan” in response to COVID-19, including a commitment to accelerate its €10b investment plan. Endesa is also continuing with its planned increases in renewables capacity.
In a move that would promote domestic demand, the Government is considering requiring local energy-intensive companies to source 10% of their power through PPAs. The proposed regulation would also allow corporates to meet this target by purchasing guarantees of origin (GO) certificates, but such a strategy would expose them to the risk of a supply squeeze in that market.
Outlook
Short-term disruptions from COVID-19 notwithstanding, most investors remain positive on Spain. The country benefits from good renewable energy sources; the direction of travel is clear, in policy terms; and the lack of subsidies now needed by the clean-energy sector makes pro-renewables policies less costly and less exposed to regulatory risk than in the past.
Summary
Spain has been hit hard by COVID-19, but climate and energy policy remains a high priority for the new coalition government. It has set out aggressive but achievable plans to increase wind and solar, and most investors remain positive about Spain’s medium-term prospects.