Spain’s CSP sector

Spain’s Government “devastates” the CSP sector

Spain’s government approves new regulation that could lead to a 30% reduction of revenues for CSP plants

On Friday 1 February, Spain’s Council of Ministers approved a new Royal Decree Law aimed at reducing the so-called ‘tariff deficit” –the difference between the selling price and ‘recognized’ costs of electricity generation in the Spanish electricity market.
Spain’s government expects to reduce the electricity sector costs by roughly €500 to €900 million with these new measures. The measures included in the Decree will only affect the so-called ‘regulated costs’, which include transport, distribution and the ‘special regime’ in which renewables are included

What does the new law mean for CSP
Two changes will be applied to the economic regime under which the CSP sector is regulated in Spain. Firstly, the Feed-in-Tariff will no longer be updated according to the standard Consumer Price Index (CPI), but with an index that will exclude “elements outside the electric system” such as staple foodstuffs, José Manuel Soria, Minister of Energy, stated in the press briefing

Secondly, whilst CSP plants could previously choose to operate under two different options either at fixed-tariff or receive the ‘market price plus a premium’, from now on, only the fixed tariff will be allowed. This basically means that CSP plants won´t be rewarded for selling at times of peak demand (which is why companies would have installed storage) and instead they will get the same amount regardless of the time they sell the energy. This means that during peak times there will be less suppliers and therefore the electricity produced by gas plants will be of a higher cost as there is less competition.

Luis Crespo, General Secretary of Protermosolar (Spain’s CSP industry association) stated that the sector is “devastated” with this new change in the regulatory framework and has described it as a “compulsory purchase with no payment”.

Additionally, Protermosolar estimates the reduction in the incomes of the plants with these new measures will account for losses of 40 to 50 euros per MWh in revenue and foresees that CSP plants will have to face a 30% reduction of revenues, which puts the economic feasibility of these projects going forward at serious risk.

Crespo says that the CSP sector is “helpless” and warns about lawsuits against Spain in the International Court of Arbitration.
In a letter addressed to Spain’s Prime Minister Mariano Rajoy, Luis Crespo, on behalf of Protermosolar asked the Minister to amend these new measures, as the companies who own the projects will most likely become bankrupt soon. Crespo further alleges that “the Government, with disproportionate measures over the past few months, has destroyed a sector which employed 30,000 people”

Protermosolar claims the CSP sector is not responsible for the ‘tariff deficit’ as it has received a minimal amount of incentives or subsidies and the Government is promoting an unstable regulatory framework, which creates legal uncertainty for investments in the country as whole.

The US’ Ambassador in Spain, Alan D. Solomont, was asked about this issue in a meeting with journalists and expressed concerns about the investment climate in Spain. Solomont said these measures introduce instability when a stable regulatory framework is needed

The decline of CSP in Spain
Since January 2012, the CSP sector has been affected by several changes in the regulatory framework, which have gravely undermined CSP growth in the country.

In January 2012 the Government halted the deployment of new renewable energy facilities: although at that time CSP plants under construction were not affected, no new plants were allowed to receive the Feed-in-Tariff, excluding the plants that had already been pre-assigned.

Later in 2012 another Decree was approved which applied a 7% tax to the incomes of all electricity generators. This measure affected different generators differently, as gas generators have different statuses in the energy pooling system. For example, gas generators can simply readjust their prices at an incremental level, which they calculate based on their costs plus a marginal profit. Nuclear and renewables, however, cannot raise prices and have been left with a 7% reduction of their margins

For CSP, in addition to the 7% tax on incomes, a reduction in the FiT -yet to be quantified- has been applied to the proportional use of natural gas with a revised price for electricity generated from the natural gas back-up – which in Spain can be up to 15%.
Furthermore, Spanish regulation has curtailed the use of other fuels such as biogas in CSP plants

A month ago all these changes combined were estimated to reduce revenues by roughly 22%, according to Protermosolar. The revised current estimates, in wake of the Decree last Friday, has increased to 30%, which could make projects unfeasible.

With an estimated 30% loss of revenue, CSP developers with plants in operation and construction will struggle in Spain. With the largest operational capacity in the world, Spain’s CSP decline is certain to have knock-on effects as developers take their businesses abroad in an attempt to stay afloat

By Jorge Alcauza

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