Will RD1565/2010 cause a shakeout in the Spanish PV sector?
A game of musical chairs for large PV plants in Spain:
RD1565/2010 punishes the Spanish PV sector disproportionately hard. Several retroactive measures and a potential limitation of the total volume to be installed have been adopted to scapegoat PV. A shakeout may occur in the sector, who is going to refinance or even enter with equity in distressed PV plants?
Retroactivity through the backdoor
ANNEX XII of Royal Decree 1565/2010 opens the backdoor for a limitation of operational hours for PV plants. This change has been the cause of many hot headed disputes between the Ministry of Industry and the APPA during the negotiations preceding this piece of legislation. Government representatives have indicated that they might limit the hour profile for PV to 1200h/Y. The purpose of this tool is to limit costs for the system, by limiting the amount of hours for which a PV installation may be eligible for the FIT. It will apply to all PV installations, including those operational before RD1565/2010 entered into force. ANNEX XII is a dynamic element of the previous legislation, and can be adapted for operational purposes.The effect of this tool is to punish efficient installations. Efficient installations produce more with less, and may be designed to do so, probably at a higher cost then the less efficient. If these installations were also financed with this in mind, then we may have a problem when this measure really is put in practice. In such an event the most efficient installations may need to refinance themselves.
In our opinion this is definitely a violation of common sense in general and maybe of the legal certainty principle in particular. According to Spanish jurisprudence the key element here is the overall return on investment which shall be guaranteed with a feed in tariff system. Without leverage, 7% seems to be a ROI which the doctrine has embraced. We would have to benchmark market costs of applied technology, and the hour profile needed by each technology to obtain at least the aforementioned ROI.
Maybe we can get relief from article 16 of the European Directive 2009/28/EC on the promotion of renewable energy sources. This article obliges the member states to minimize obstacles to the use of electricity from renewable sources, and not to discriminate against electricity from renewable sources on other than objective grounds. Limiting the functional hour profile is an arbitrary discrimination against more efficiently operating installations, which at the time have required heavier investment for using costlier technology and engineering.
Retroactivity in the face
The new law also limits the FIT to 25 years for all PV installations, also if these were already operational before its entry into force. After this date, these installations will obtain the Pool price for electricity. This is a very though one. Bearing in mind what we discussed in the previous paragraph, we will now have to estimate price developments in the electricity market in, say, 23 years from now. Can you make an educated guess? How many years does your PV installation need to obtain an unlevered ROI of 7%? Limiting the FIT to 25 years is an arbitrary discrimination of other technologies against PV, since the 25Y cap is not applied to other renewable technologies.
Will this lead to a shakeout in PV projects?
Both types of retroactivity may negatively affect the ROI of the installations currently operational in Spain. Some projects may need to be refinanced, and other may need to be sold out, for its equity to look for better returns. Repowering of PV will from now on be out of the question because of operational hour profile risk.
Other important changes
The FIT for PV has been significantly lowered, with a clear shift in focus from large soil based installations to distributed generation. Type I.1 has been modified as not to include greenhouses etc. The FIT is lowered only by 5% for Type I.1 installations, which are rooftop installations of less than 20kW. The FIT for larger rooftop installations is lowered by 25% and the FIT for soil based installations is reduced by 45%.
The new FIT will enter into force as of the 2nd inscription round of 2011, and the volume of cancelled projects will be lost for the coupon. This is especially critical for the fulfillment of the Spanish policy goals.
Groups of installations >10MW shall adhere to a control centre as of June 30th 2011. Groups >1MW are obliged to tele-measure as of June 20th 2011. Control centre four groups >10MW before June 30 2011. The reactive energy values change for all technology.
What do we think about this?
Renewable Energies business has always been volatile in Spain. As long as we remember, it took the governments on average a year to come up with new legislation, irrespective whether PSOE or PP was in power. Retroactivity isn’t new either; we have seen that on several occasions happening to the Wind sector. If you can’t stand the heat, stay out of the kitchen, we would say about the Spanish Renewables sector. However, what was unseen before was the reckless bashing of the PV sector by Industry Minister Miguel Sebastian. He apparently got nervous about the tariff deficit in Spain and needed a scapegoat. Needless to say that said tariff deficit already existed when there was hardly any PV on the Spanish Grid.
RD1565/2010 punished the Spanish PV sector disproportionately hard. Several retroactive measures and a potential limitation of the total volume to be installed have been adopted to scapegoat PV. We will deepen our analysis and keep you posted with more on retroactivity and violations of the aforementioned EC directive.
if a shakeout may occur in the sector, who is going to refinance or even enter with equity in distressed PV plants? In the meantime, if we look at the Spanish goals for renewable energies in 2020, we still have a lot of work to do.
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