Feed in Tariff: Spain Case

Antonio Lopez Martinez Asian Development Bank Clean Energy Week June 2011

MAIN GOALS OF THE EU & SPAIN

Renewable Energies 12% of primary energy consumption in 2010.

White Paper, 1997

Electricity Production from RES 22% of electricity consumption in 2010. Spain 29,4%.

Directive 2001/77/CE
Biofuels 2% of transport consumption in 2005 and 5.75% in 2010.

Directive 2003/30/CE

Feed in Tariff (FIT)

- most widely used policy in the world of accelerating RE deployment. - have led to the deployment of more than 15,000 MW of Solar PV power and more than 55,000MW of wind power in EU from 200020002009. - responsible for approximately 75% of global PV and 45% of global wind deployment.

FIT Concept
- Drives market growth by providing developers longlongterm purchase agreements for the sale of electricity generated from RE sources. - Purchase agreements typically offer a specified price for every kWh of electricity produced and are structured with contracts ranging from 10-25 years. 10- Payment level is differentiated by technology type, project size, resource quality and project location.

THE RENEWABLE ENERGY PLAN (REP) 2005-2010 2005Targets of REP 2005-2010 in 2010 : 2005 12.1% of total energy consumption will come from RES; Electricity generation from RES will represent 30.3% of electricity production; Biofuels will correspond to 5.83% of diesel and petrol consumption in the transport sector. New instruments as well as modifications of existing ones are included in relation with previous policy.

Renewable Energies in Spain

Renewable Energies reached around 20 % of the electricity production in Spain at the end of 2008

Natural gas 38.8%

Pumping 0.8% Hydro 7.4%

Oil 6.0% Coal 15.9%

Renewables 19.7%

Wind 9.9%

Nuclear 18.7%

PV 0.8% Biomass 1.6%

Source: Ministry of Industry, Tourism and Commerce of Spain. Plan de Energias Renovables 2011-2020

Spanish Energy Policy Goals

Competitiveness
Competitive energy prices for consumers and companies.

Sustainability
Fighting against climate change (CO2 emissions) Efficiency and energy saving Innovation on clean technologies

Security of Supply
Diversified energy mix Oil stocks, capacity margin on electricity, Cross-border interconnections

RENEWABLE ENERGIES ARE RELEVANT IN ALL THESE TARGETS

Source: Ministry of Industry, Tourism and Commerce of Spain. Plan de Energias Renovables 2011-2020
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Renewable Energies Plan 2005-2010 2005MAIN DATA UP TO 2010: Public support: 8,492,22 M M Total estimated investment: 23,598.64 M M Total energy production: 10,480,526 toe Net employment generated: 94,925 CO2 avoided emissions (against natural gas combined cycle): 76,983,254 tCO2 DEFINED TARGETS OF INSTALLED POWER: Wind: 20,155 MW Solar photovoltaic: 400 MW Concentrating solar thermal power: 500 MW Biogas: 235 MW Biomass: 2,039 MW HydroHydro-electric (<10 MW): 2,199 MW HydroHydro-electric (10 MW to 50 MW): 3,257 MW
Source: Ministry of Industry, Tourism and Commerce of Spain. Plan de Energias Renovables 2011-2020

Spain external energy dependency: 99.5% oil dependence 97.1% gas dependence

Renewable Energies in a competitive market

RE has a higher cost but the system needs RE, why?

a) Minimize outside energy dependency b) Diversification the energy MIX. (security MIX. of the supply) c) Develop distributed generation minimize transport loses. loses. To

d) Environmental Issues (GHG, Kyoto, )

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Renewable Energies in a competitive market

Conclusions: Conclusions:
- RE can not compete in the energy market. market.

- Not profitable in business terms. terms. - BUT, we need RE. RE. - So, we should exclude them from the regulation of the energy market and subsidize them to make RE profitable for the promoter. promoter.

Mechanism
1. Purchase agreement 2. Subsidize the price, with the goal of a reasonable profit. profit. 3. Priority Access to the grid. grid.

Electric Power Act (Law 54/1997, 27 November)

Main aim: Full liberalization of electricity market. Activities regulated by the Law: - System Management: Market Operator. Transport activity: System Operator.

Establishes: - Special Regime for renewable energy sources (< 50 MW). - Guaranteed grid access. - Producers not obliged to submit bids to the pool. Premium price for electricity from RES.

Market: Pool based system. Regulatory Independent body: National Electric Regulatory Commission.

LEARNING BY DOING
RD 2366/1994. Feed-In Tariff Feed Small capacity facilities. RD 2818/1998. Feed-In Tariff. Feed Revision of the tariffs and technologies. Increase maximum capacity. RD 436/2004. Feed-In Tariff. Premium. Feed Revision of the tariffs and technologies. Windfall profits in the market option. Insufficient development of biomass and cogeneration. RD 661/2007. Feed-In Tariff. Premium. Feed Cap & Floor.

RD 661/2007. MOTIVATIONS
The modification of the economic and legal scheme regulating the special scheme in force so far (RD 436/2004) becomes necessary for several reasons: The growth undergone by the special scheme in the last years has pointed to the need to regulate some technical aspects to contribute to the increase of these technologies, safeguarding the systems security and guaranteeing its supply quality as well as the restrictions to the production of the said generation. Objectives of reference installed capacity are established in compliance with the objectives in the Renewable Energies Plan 200520052010 and the Energy Saving and Efficiency Strategy for Spain (E4), to which the retribution scheme set out in this Royal Decree shall apply.

REMUNERATION MECHANISMS
The titleholders of the facilities should choose one of the following options: Transfer electricity to the system through the transport or distribution grid, therefore being paid a feed-in tariff for it, unique for all the programming feedperiods. Sell the electricity on the wholesale electricity market. In this case, the electricity sale price will be the hour price resulting in the wholesale market supplemented if any, with a premium. In this last case, a new feature is introduced for some technologies, a higher and a lower limit (cap and floor).

The titleholders of the facilities may choose the most suitable sale options for periods no shorter than a year. Nevertheless, the participation in the market is encouraged as it is deemed that in this way, a lower administrative intervention is achieved as regards the establishment of electricity prices as well as a better, more efficient allocation of the systems costs, particularly regarding the imbalance management cost and the provision of supplementary services.

Cap and floor prices

Minimum and maximum prices for the overall remuneration level were introduced under RD 661/2007. System reduces the flexibility of the market option determined in RD 436/2004 introducing a range for the sum of electricity price and premium. Variable premium is determined on an hourly basis.

CASE 1: As long as the sum of the electricity market price and the reference premium amounts to less than the minimum limit, the overall remuneration level is equal to the minimum. The resulting premium is calculated as the difference between the minimum level and the electricity market price. In this area, the overall remuneration level is constant whereas the real premium declines depending on the electricity market price.

CASE 2: If the sum of the electricity market price and the reference premium ranges between the minimum and the maximum limit, the reference premium is paid in addition to the electricity market price. Thus, the overall remuneration level increases, whilst the real premium is constant.

CASE 3: Until the electricity price exceeds the cap price, the overall remuneration level corresponds to the cap and the real premium is calculated as the difference between the cap and the electricity price. The overall remuneration remains constant and the real premium declines.

CASE 4: If the market electricity price exceeds the cap, no premium is paid and the overall remuneration is equal to the electricity market price.

PREMIUM

This new system protects the promoter when the income derived from the market price is too low, and removes the premium when the income is high enough to ensure breaking even, leaving out the irrationalities in the payment of technologies whose costs are not directly linked to oil prices on international markets.

FEEDFEED-IN TARIFFS AND PREMIUMS

Wind Energy Balance (2003-2007) (2003ECONOMIC BALANCE OF WIND ENERGY SUPPORT IN SPAIN (2003-2007 PERIOD)

Macroeconomic Study on the impact of the Wind Energy sector in Spain, Deloitte (2008)

The objective under consideration (PER 2010-2020) is to arrive to 40.000 MW of installed wind power in 2020

Results: Photovoltaic
Photovoltaic Installed Capacity (MW)
3000 2500 2000 1500
85% of the objective

1000
REP objective

500 0

September 2007
Source: Ministry of Industry, Tourism and Commerce of Spain. Plan de Energias Renovables 2011-2020

September 2008
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CSP: Objectives & Expected Evolution

150 MW 150 MW 50 MW 200 MW 100 MW 2.628 MW 90 MW 50 MW 20 MW

3.343 MW 50 MW

2.250 2.000 1.750 1.500 1.250 1.000 750

500 1.198

3.793 MW

60 MW

ESTIMATED PER

2.049 MW

2.048

Total with access to:

11,02 MW

Transport grid: 10.064 MW Distribution grid: 2.667 MW

Source: REE.

500 250
11 10 11 50 131 200

331 350

Status of projects under final approval / execution on 06.11.2008

2011

0 2006 2007 2008 2009 2010

Source: Ministry of Industry, Tourism and Commerce of Spain. Plan de Energias Renovables 2011-2020

Thank you.
For more information

Antonio Lopez antoniolopez@adb.org