Spain Moves to Prevent a Second Solar Bubble

Spain’s energy regulator is moving to tighten PV plant grid
connection rules as the country heads towards a second solar
development bubble.

The National Commission on Markets and Competition (Comisión
Nacional de los Mercados y la Competencia, or CNMC) hopes the rule
changes, planned for January, will stem a rush of grid connection
applications that is already five times Spain’s total electricity
demand.

CNMC President José María Marín Quemada recently told the
Spanish Photovoltaic Union (Unión Española Fotovoltaica or UNEF)
that by June the regulator had received grid connection
applications for 196 gigawatts of capacity. This level is going up
by around 15 gigawatts a month, he said. 

There is no chance that all of this capacity will get built.
This year, Spain’s electricity demand peaked on January 22 at

40.5 gigawatts
. The highest level ever registered, in December
2007, was 45.5 gigawatts.

The influx of applications also far outstrips Spain’s
predictions for future energy demand. The country’s National
Energy and Climate Plan allows for 55 gigawatts of renewable energy
development up to 2030, which equates to around four months’
worth of solar applications at the current rate.

Fragility of a revived market

The rush to file applications follows
changes in government
that have restored investor confidence in
the market, along with a growing appetite for corporate
power-purchase agreements (PPAs) and merchant plants.

The changes have helped push Spain to the top of the European
league table for solar installations in 2019. Industry body
SolarPower Europe expects the country to install more than 4
gigawatts this year, up from 288 megawatts in 2018 and
ahead of Germany
.  

But the rush for grid applications is beginning to echo
Spain’s first solar bubble, which started with an overly generous
feed-in tariff in 2007 and ended almost bankrupting the country in
2010, leading to retroactive cuts that paralyzed the renewables
industry for almost a decade.

For now, the risk is still contained because most investors have
not got beyond the grid connection application process, which is
relatively easy. Applicants are not even required to have a viable
plant plan.

This is thought to have led many speculative investors to seek a
grid connection approval so they can sell it onto a developer later
on.

According to
press reports
, a grid connection authorization could change
hands for up to around 100,000 euros ($112,000) per megawatt for
utility-scale plants in some of Spain’s autonomous
communities.

The CNMC wants to put a halt to such practices by imposing
stricter requirements and time limits on the application process.
For example, developers will have just 12 months to present an
environmental impact assessment and 48 months to get works
authorization. Similarly, developers that are unable to meet the
strict schedule requirements would have up to six months to forfeit
their projects and will get their deposits back. 

Alongside these measures to make sure applications are backed by
viable projects, the CNMC is aiming to cut red tape.         
                               

Jenny Chase, head of solar analysis at Bloomberg New Energy
Finance (BNEF), said interest in building solar in Spain was being
bolstered by favorable levelized cost of energy (LCOE) economics in
the country.

“The Iberian market as a whole has spot market prices for
power that are above solar LCOE,” she said.

This is prompting developers to eschew government auctions and
take a chance on the spot market as a source of income for plants,
said Chase.

“There are a couple of gigawatts of projects that are going to
be built in the next couple of years without being part of the
auction program,” Chase observed. “Very few of them have
long-term PPAs.”

In line with SolarPower Europe’s estimations, BNEF expects to
see between 4.1 gigawatts and 4.9 gigawatts of solar installed in
Spain this year, dropping to between 1.6 gigawatts and 2.5
gigawatts in 2020 and then rising slightly, to between 1.7
gigawatts and 3 gigawatts, in 2021.

“Spain has recovered remarkably well from a disastrous feed-in
tariff followed by retroactive cuts,” Chase said. “It’s now
perceived as being a bankable market.”

The question now is how long the regulator can keep it that
way.

Source: FS – GreenTech Media
Spain Moves to Prevent a Second Solar Bubble