New Proposal On Premiums Will Hit Spanish Renewables Retribution

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In 2016, Spain’s Energy Ministry needs to revise the parameters related to the adjustment of green energy premiums included in the 2013 electricity sector reform. The proposal which Energy Minister Alvaro Nadal has sent to the National Competition Commission, pending amendments in order to have it ready before end-year, has not gone down well with green energy producers. They say that the proposal, as it is, limits the premiums and does not allow them to reach the stipulated reasonable rate of return.

The reasonable rate of return stipulated in the law is 7.39% for wind energy over 25 years. The government pays a fixed monthly retribution so that the companies can obtain this rate of return. The retribution is based on the government’s estimate of the electricity pool price plus a premium. If in the end the pool price does not meet the ministry’s forecasts, a readjustment is made three years later. But there are limits for compensating this readjustment. So if the pool price is finally lower than the government predicted, those energy producers who don’t obtain the afore-mentioned rate of return are faced with a loss, according to Bankinter analysts.

For 2017,2018 and 2019, the government has to incorporate a criteria for prices set by an outside party: the Iberian Energy Derivatives Exchange (OMIP). But from 2020 onwards, it is no longer obliged to take this as reference and has introduced an estimated price which is considered to be high.In his assumptions, Nadal is maintaining the price in the electricity pool at 52 euros/megawatt. For 2020, the difference between the OMIP future’s price and the ministry’s estimate is 25%.

A similar situation happened in 2014-2016 when the electricity pool price (42 euros in 2014, 50 in 2015 and less than 40 so far this year) was less than that estimated by the government for the period. And this was prejudicial for the sector. The companies which could potentially suffer the most this time round would be Acciona and Iberdrola.

*Image: Flickr / Jesse Clockwork