Spain’s renewables industry is celebrating proposed
legislation that could provide plant owners with guaranteed income
for up to 12 years.
The reguatory framework would give renewable energy plant
owners the option to stick with their current level of remuneration
until the end of 2031, or switch to a formula based on the weighted
average cost of capital (WACC) that will be reviewed after six
Both options are seen as a vast improvement on the current
system. Under a statutory review this year, the system would have
seen a so-called “reasonable return” remuneration scheme falling
about 42 percent in value, from a nominal 7.39 percent today to
around 4.3 percent from 2020.
Spain’s former administration introduced the reasonable return
concept in lieu of feed-in tariffs (FITs) after it scrapped a
generous FIT scheme in 2013. The concept in theory allows for a
fixed return on investment over the lifetime of a plant.
But it has been widely criticized by developers and investors.
Detractors have noted that the investment levels for plants are
based on theoretical rather than actual figures. Furthermore, the
7.39 percent is a pre-tax amount, which equates to a roughly 5
percent return after tax.
Plant owners have also struggled to achieve 7.39 percent in
practice because of
government accounting tricks.
But an even bigger bugbear is a clause allowing the government
to review the level of reasonable return, in line with Spain’s
national bond rate, every three years. This effectively meant
investors had no long-term visibility of plant revenues.
This uncertainty spooked investors and has caused wind and solar
installation rates to crater in Spain since 2013. More recently,
intrepid solar developers have simply opted to ignore the
regulatory risk attached to government bids and have built merchant
However, the lack of investment in recent years means that Spain
now faces an uphill struggle to meet its European renewable energy
The Spanish renewable energy business association APPA estimates
the country will need to invest €100 billion ($115 billion) to
achieve its climate change goals.
The two proposals
The new law proposal shows Spain’s current left-wing
government, which came to power last year, is keen to emphasize its
commitment to renewables. Nonetheless, one feature of the draft
legislation has puzzled observers.
The proposal gives plant owners the choice between a 7.39
percent remuneration rate for 12 years or an apparently vastly
inferior scheme based on the WACC, which offers a return of around
7.09 percent and will be reviewed in six years.
Risk-happy investors might want to take a punt on the WACC being
higher 2026, but in practice the first option seems a
Hence it is unclear why Spain’s Ministry for Ecological
Transition has even bothered with the WACC alternative, said Daniel
Pérez Rodríguez, chief legal officer at Holaluz, a renewable
The secret appears to be in small print related to Spain’s
liability from compensation claims stemming from the 2013 law.
Spain faces a deluge of legal actions from renewable plant owners
that lost out when FIT payments were stopped.
Under the proposed law, asset owners choosing to take the 7.39
percent option will have to accept a cap on any existing claims
that effectively limits the state’s liability to within the
amount it would pay under the new remuneration scheme anyway.
“If you have an ongoing legal process then there’s no
advantage in pursuing it if you take this up,” said Jose María
González Moya, managing director of APPA. “The government is
saying: ‘Take your arbitration cases away and I’ll give you 12
years at 7.39.’”
But will the law pass?
With most renewable asset owners expected to favor the
higher-return, longer-term option, the question now is how soon the
law might be passed.
This is not easy to predict given the balance of power between
the ruling Spanish Socialist Workers’ Party (Partido Socialista
Obrero Español or PSOE) and the opposition People’s Party (Partido
Popular or PP).
The PSOE is governing with the slimmest representation of any
ruling party in the history of Spain and the PP, which crafted the
2013 regulatory framework, controls the senate.
Since the PSOE took control in June 2018, the PP has diligently
stood in the way of practically all of the PSOE’s proposals.
Given growing cross-party support for clean energy, though, it is
expected to abstain from a vote on the renewables law.
Even so, experts believe it could be at least six months to a
year before the legislation is passed. And things could take even
longer if the PP and its allies find a way of forcing early
elections. Renewable investors are praying that won’t happen.
Richard Heap, editor-in-chief at the analyst group A Word About
Wind, which tracks wind sector investments, said: “It’s
undoubtedly good for investors to have long-term visibility. [Trade
body] WindEurope has spent years calling for governments to provide
clarity to 2030.”
Renewable energy investors are cautiously optimistic they’ll get
Source: FS – GreenTech Media
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