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Spain: War of the Renewables

by ManfromMiddletown Tue Apr 27th, 2010 at 06:40:48 AM EST

Something of a spat is emerging in Spain over the issue of feed in tariffs for renewable electricity. Much of the concern centers around the idea that the current system is unsustainable, because projections show subsidies rising 32.5% between now and 2013.  This rise is largely the product of a massive expansion in Spanish thermic solar capacity from 931 MW in 2010, to 2,470 MW in 2013.

The pictures help, but the different technologies are (from left to right) cogeneration, photovoltaic, thermic solar, wind, mini-hydro, and biomass.  The blue line is subsidies in millions of euros, and the black numbers capacity in MWs. We can get the average feed in tariff from the numbers here.

Cogeneration €0.13/w
Photovoltaic €0.63/w
Thermic Solar €0.61/w
Wind €0.06/w
Mini-hydro €0.08/w
Biomass €0.25/w

from the diaries - Nomad


While the industry organizations have put together a lobby to fight the cuts, the news is coming hard.  Stocks across the sector have fallen today, and the word on the street is that the government may make the cuts retroactive back through 2009, meaning that the revenues of the companies will be slashed.  Although this certainly benefits gas fired plants, it looks like the prime driver here is the idea of austerity in the face of the prospect an onslaught of Greek style speculative attacks on sovereign debt.  It looks like the game is on in Iberia, and renewables subsidies are the first item for attack.

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Hi Man,

You should correct the feed in tariffs figures from €/w to €/kwh. Watt is measure of power, not energy.

I think you may be also mistaking total tariffs with the feed-ins. If the feed-in for PV is 0.63 €/kwh, then the total gets close to 0.75 €/kwh. That's a huge figure.

Anyway it is nice to see that the Wind tariff is actually quite low. It wont take that much longer before Gas gets close to those figures.

You might find me At The Edge Of Time.

by Luis de Sousa (luis[dot]a[dot]de[dot]sousa[at]gmail[dot]com) on Thu Apr 22nd, 2010 at 10:10:23 AM EST
And btw, in Portugal this is not an issue yet because the feed-in-tariffs are subject to yearly capacity goals. Also, the feed-ins go down with time, both for new systems as for those already in place. The main idea is to anticipate the investment break-even.

You might find me At The Edge Of Time.
by Luis de Sousa (luis[dot]a[dot]de[dot]sousa[at]gmail[dot]com) on Thu Apr 22nd, 2010 at 10:13:55 AM EST
[ Parent ]
Spain has much the same idea of weaning renewables off of subsidies.  There are fixed periods in which new installations are eligible for subsidies.  The idea is to pay down the capital costs, because, of course, the marginal cost of production is quite low with no fuel cost and only O&M to consider.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg
by ManfromMiddletown (manfrommiddletown at lycos dot com) on Thu Apr 22nd, 2010 at 10:47:26 AM EST
[ Parent ]
You should correct the feed in tariffs figures from €/w to €/kwh. Watt is measure of power, not energy.

True, the problem is that I don't have capacity factors, so I can't calculate €/kwh from €/w.  The comparison is relative, but I thought useful.  

The PV tariff is huge, huge, huge. I imagine that the Portuguese us close enough that you get most of the graph.  Look at where the rise in subsidies is coming from, thermic solar.  Installed capacity is going to be increasing by 39.4% annually, on average, over the next 3 years. This looks like what happened with wind in the country in the late 1990s.

This is why I see Spain as the country where you have solar break out leak wind did, and it's a lot of the same companies.  As cool as the Pelamis contraptions are, I think that the breakwater technology being tested along the coast west of Bilbao is more likely to work.  With sea levels rising, there are going to have to be better sea walls built, and if you can incorporate energy production into the project with a small marginal cost, then all the energy sales have to pay for is the marginal cost of energy generation equipment.  That's an ugly sentence, but I think that the thought is clear.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Thu Apr 22nd, 2010 at 10:44:48 AM EST
[ Parent ]
ManfromMiddletown:
With sea levels rising, there are going to have to be better sea walls built, and if you can incorporate energy production into the project with a small marginal cost, then all the energy sales have to pay for is the marginal cost of energy generation equipment.

wow, that's visionary, (read first here on ET!).

nice thinking MfM.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Thu Apr 22nd, 2010 at 01:52:13 PM EST
[ Parent ]
That's an ugly sentence, but I think that the thought is clear.

It is a beautiful sentence. Complex sentences for complex thoughts. Except, perhaps, in academia.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Apr 27th, 2010 at 09:13:54 PM EST
[ Parent ]
I think you may be also mistaking total tariffs with the feed-ins.I think you may be also mistaking total tariffs with the feed-ins.

In Spain, renewables producers can opt both for a regime where the full tariff they get from the distributor is a fixed feed-in rate, and a regime where they get paid a surplus above the market price. So it's unclear what is called "subsidy" here.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Tue Apr 27th, 2010 at 01:36:15 PM EST
[ Parent ]
but the EWEA has come up with a rather relevant study:


Exploring the 'merit order effect'

The new literature review, prepared for EWEA by energy consultants Pöyry, shows that adding wind energy into the power mix has a significant influence on the resulting price of electricity - the so-called merit order effect (MOE) - whilst at the same time reducing CO2 emissions. The literature review brings together, for the first time, the findings of case-studies in Germany, Denmark and Belgium.

Click here to download the full report in PDF.

This is a factoid that I've been pushing here on ET for close to 2 years, and which I have lobbied EWEA to publicize more; I don't know if this publication is linked to my efforts, but I'll claim credit anyway!

**

What this means is that the "cost" of the subsidy (which, btw, is borne by electricity users, not by tax payers, so the budget restrictions  argument is bunk) needs to be reduced by the merit order effect, ie the lower power prices, for consumers caused by the injection of zero-marginal-cost renewables in the system...

Wind power

by Jerome a Paris (etg@eurotrib.com) on Thu Apr 22nd, 2010 at 12:19:06 PM EST
There is always one more thing to know, one more factor to put in the spreadsheet. I'm glad my knowledge base has now gotten to the point of understanding this factor Jerome, since my ignorance had blinded me any of your previous mentions of it.

Thanks for the link to the report.

Never underestimate their intelligence, always underestimate their knowledge.

Frank Delaney ~ Ireland

by siegestate (siegestate or beyondwarispeace.com) on Tue Apr 27th, 2010 at 07:32:22 AM EST
[ Parent ]
yes, that is very important indeed (as discussed many times before on ET). However, are you sure that in Spain the FIT works like in Germany where the costs are passed to the customer? I'm not really that informed about the Spanish electricity market but I know that it's a bit different? You financed some Spanish deals a while back, could you perhaps elaborate or link?
by crankykarsten (cranky (where?) gmx dot organisation) on Tue Apr 27th, 2010 at 11:51:00 AM EST
[ Parent ]
The particularities of the Spanish feed-in law came up earlier, here.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue Apr 27th, 2010 at 01:54:34 PM EST
[ Parent ]
That must be why Gamesa's stock price collapsed today.  They are down 5% today, and 10% for the week.
by corncam on Thu Apr 22nd, 2010 at 06:34:09 PM EST
We would like to thank Goldman Sachs for their prescient downgrade of the renewable energy sector 10 April, which hit Gamesa harder.  Way to factor in the real world, boys.  Externalities sure don't count.  Have fun with your entry-level Ferraris.

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin
by Crazy Horse on Fri Apr 23rd, 2010 at 03:05:37 AM EST
[ Parent ]
Yes, it's a big part of it, IBEX-listed stocks across the sector were pushed down, and the imminent IPO of two renewables companies has been complicated.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg
by ManfromMiddletown (manfrommiddletown at lycos dot com) on Fri Apr 23rd, 2010 at 12:45:54 PM EST
[ Parent ]
Were Gamesa also in the running for the 2.1GWp contract from EDP Renewables, that Vestas just won? If so, that might explain part of Gamesa's drop.
by LondonAnalytics (Andrew Smith) on Tue Apr 27th, 2010 at 07:58:41 AM EST
[ Parent ]
Externe, and other studies show that the negative externalities of coal are typically around 0.05 euro and the negative externalities for wind/nukes/(well placed)hydro are too small to be worth counting -Therefore, the feedin tarrifs for hydro and wind are perfectly appropriate and at the right level by any reckoning. The rest of them are bloody bonkers. Subsidies at levels that high will not encourage the development of cheap renewable energy tech (because you can sell very expensive renewable energy tech with these subsidies and take baths in the profits!) The fact that  biofuels and photovoltaics do have significant negative externalities makes those subsidies complete insanity.
by Thomas on Tue Apr 27th, 2010 at 12:30:03 PM EST
Yet again, I have to explain to you that feed-in tariffs aren't meant to turn externalities into internalities, but to create a stable and sufficiently large market for competing producers of an emerging technology to pursue development and realise economies of scale, thus bringing down those costs... and that just that happened with wind, and is happening with PV and the others.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue Apr 27th, 2010 at 01:58:19 PM EST
[ Parent ]
The issue is that subsidies at these levels create incentives for the development of inappropriate technologies. At a subsidy level of over ten times the cost of wind, RnD is going to be spent on not only technologies that are currently uneconomic, but also on technologies that do not have even a theoretical possibility of ever becoming economic. It is, simply, an inappropriate way to spur development. If a technology is so immature that its current costs are that high, appropriate government support for the field is "build a prototype in a government lab in hope of finding ways to lower costs" not "deploy whatever is currently sort of functional in the field"
by Thomas on Tue Apr 27th, 2010 at 02:08:18 PM EST
[ Parent ]
At a subsidy level of over ten times the cost of wind, RnD is going to be spent on not only technologies that are currently uneconomic, but also on technologies that do not have even a theoretical possibility of ever becoming economic.

Whoa. Are you now claiming that the difference between prototype phase and series mass-production of a developed technology cannot be 90%?... On what basis? I'm less pessimistic seeing this:

"build a prototype in a government lab in hope of finding ways to lower costs"

That sounds nice, but competition with a sizeable budget brings faster development, large-scale production brings down costs by economies of scale.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Tue Apr 27th, 2010 at 02:30:39 PM EST
[ Parent ]
Which would make a system that subsidized the first x megawatt produced at certain rate, and then declined coherent policy, but the subsidies are unbounded, or bounded by year of production instead of number of installations built, and that creates strong incentives to build as fast as at all possible, and to hell with cost, because this nets you the highest subsidy, and total expediture on these subsidies are, quite simply, insane for the results they produce. I saw a blog post on this just recently... one sec.

http://uvdiv.blogspot.com/2010/04/how-much-subsidy-for-german-solar-power.html#comments

The financial commitment for 2009 alone is a minimum of 18 billion euros plus. An equivalent investment in nuclear capacity would allow the German government to build 6 EPRs, producing some 9 times the power and earning the government a profit Because it would own all six free and clear. This is, quite simply, mad.

by Thomas on Tue Apr 27th, 2010 at 03:55:02 PM EST
[ Parent ]
The total committed expediture to date on German solar subsidies has a present cash value of 60 billion + euros. If spent on atomic power, that is 20 EPR's, or some 32 gigawatts of carbon free electricity capacity.
This would produce 262800 gigawatthours of electricity per year. Say. That is an interesting number. Where have I heard it before? Oh right, that is Germany's current production of electricty per annum from coal...
by Thomas on Tue Apr 27th, 2010 at 04:04:16 PM EST
[ Parent ]
and note, that would still not be a subsidy. That would be a 60 billion euro investment. (Altough, selling power from that much nuclear capacity that had been paid for up front would probably do sickly amusing things to the electricity market, so return might not be so good..)
by Thomas on Tue Apr 27th, 2010 at 04:10:58 PM EST
[ Parent ]
Which would make a system that subsidized the first x megawatt produced at certain rate, and then declined

How would that make sense? (And do you mean "first x megawatt-hour produced or what?) Unlike coal or nuclear, solar has almost only upfront costs (production and installation), so it stands to reason that you don't reduce the rate for already installed units. (Though inflation and cell degradation will reduce real annual income over those 20 years.)

The calculation in the blog post you link is funny: it doesn't even attempt to substract a market price from the feed-in rate, declaring all of it a "subsidy" (which, then again, is standard practice in propaganda from the German energy giants). (It would not be an easy calculation: you'd need to project future inflation, cell degradation, consider the diurnal and seasonal change of both PV output and market prices; and correct for grid use, which is zero for own consumption.) Whether even the thus the overestimated sum from that blog post is equivalent to building 6 EPRs, was already questioned by Jérôme; let me add operating, fuel and dismantling costs.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Thu Apr 29th, 2010 at 06:01:10 AM EST
[ Parent ]
sigh The issue is that paying ten times as much for one kind of green electricity as for another is mad. The entire point of any intervention in the electricity market is to reduce carbon emmissions and other pollutants yes?
There is a finite amount of capital/will/industrial capacity available to do this job. In Germany, it appears to have been admirably high, but when that enormous sum of money and good will gets wasted buying insanely overpriced solar power, very little CO2 gets displaced. I used nuclear as an example because it has low kwh costs, and that puts the issue in sharp contrast, but the basic problem is that the an extremely large amount of money has been spent and future commitments agreed to for depressingly weak results. That does not aid the future cause of green power in any way, shape or form.

It would be far more reasonable policy to tax coal at a rising rate until it goes away, as that would get actual zero-carbon capacity built in the order of "cheapest first", rather than "goldplated alter of Ra"

by Thomas on Thu Apr 29th, 2010 at 06:39:08 AM EST
[ Parent ]
OK, why not continue with the re-education.

Arrhenius Institute last week released a very important study of future PV effect in Germany.  From the english exec sum:


The present study fills this gap. In a first part, it is qualitatively shown how the power price and the equilibrium quantity on the power exchange change with increasing PV capacities. These findings can directly be translated into shrinking revenues for operators of conventional power plants. In the second part, a quantitative analysis of the German power market is provided. Based on a fundamental model analysing 8,760 hours per year with real plant data the impact of six scenarios for the build-up of PV capacities ranging from an immediate stop of new PV installations to an additional 50 GW of PV until 2020 are studied. The effects of different PV scenarios on the whole sale power price and the total revenues (i.e., price multiplied by quantity) of all conventional power plants are calculated. For an in- cumbent operator of a coal-fired power plant, the contribution margin may decrease by more than 25% and for a new, yet to build gas-fired combined cycle power plant it may drop by more the 30%. One reason for this massive impact is the fact that PV installations produce power around noon when load and, thus, power prices as well as revenues are usually the highest in Germany. In this respect PV differs considerably from other renewable energies.

Not to mention that building an export PV industry in grey Germany has a few positive externalities.  Like already done with wind.  Imagine what Spain could do, if, as this study shows, the main stakeholders of conventional power are getting their butt's kicked.  (methinks that's what losing "contributions" means.  revenue.)

PS.  when i first came across the study last week, i was surprised to see J's merit effect mentioned.  Why i can't find the reference now is to my disgrace.

Arrhenius study here

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin

by Crazy Horse on Tue Apr 27th, 2010 at 05:32:28 PM EST
[ Parent ]
Let me put this as bluntly as at all possible. The german solar subsidy program 2004-2009 entailed was a total financial commitment from the German state of 60. Billion. Euros. in present value. What the germans got for that money was an installed capacity of 1.3% of their total electricity production.
An equivalently sized investment (Not subsidy. Investment!) in nuclear capacity would have meant that every coal plant in Germany would either already have been demolished, or be scheduled for the teams with the dynamite within at most 3 years.
Not made less profitable at the margin on some future date. Already blown the fuck up due to being utterly worthless.
If the German example leads other people to copy that type and scale of subsidy? That counts as a negative externality.
by Thomas on Wed Apr 28th, 2010 at 01:27:52 AM EST
[ Parent ]
  1. the German State did not put a single cent. The feed-in tariff is borne by rate payers, not by taxpayers.
  2. as I've written in various other places, the merit order effect of the wind injected in the system was sufficiently large to ensure that the net effect on rate payers is actually to bring prices down

oh, and beyond that:

  1. can we agree that €3bn/EPR is not a realistic figure today? Can we also agree that no nukes can be built under today's market based system? And that if you start changing rules for nukes, then you can't criticize wind using these rules?
  2. the 25GW of installed wind now provide 50TWh of essentially free electricity every year - counting solar, we're getting close to 10% of yearly needs of Germany.
  3. did you count how many billion euros of solid wind and solar technology exports are not made possible by these early subsidies?


Wind power
by Jerome a Paris (etg@eurotrib.com) on Wed Apr 28th, 2010 at 02:33:41 AM EST
[ Parent ]
Wind-feed-in and solar-feed-in are diffrent in kind due to a diffrence in degree.
Each KHW of wind is warranted a minimum price of some 8 cents, and because it gets dispatched first, it mostly displaces (very expensive) gas, which means that the real subsidy is fairly theoretical. Solar is guaranteed a minimum price vastly higher than any other energy source, including all other green energies. Merit order or no, that means the extra costs are in no way theoretical, and let us, just for a second turn the merit order logic on its head. Nuclear inherently comes at the top of any rationally managed capacity dispatch order, so an investment of this size in additional capacity would crash electricity prices far and hard, no?

3 billion/epr is fairly reasonable for an average cost of a 20 reactor buildout in Germany. Germany has historically had lower nuclear construction costs than the rest of the western world, and 20 is enough to get major savings from series build

by Thomas on Wed Apr 28th, 2010 at 04:33:39 AM EST
[ Parent ]
I agree that today, feed-in tariffs for wind and solar are different in nature.

The trick is to give support to the early projects and make it possible for costs to tumble down before the absolute cost of the support mechanism becomes too heavy a burden on the system. For wind, this happened rather successfully; for solar, it seems to be more difficult.

It can still be argued that it can be good long term industrial policy, but we are at the most difficult junction right now - already some scale, and still high costs.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Wed Apr 28th, 2010 at 01:05:18 PM EST
[ Parent ]

Let me put this as bluntly as at all possible.

Fact checking will help.

I would also recommend avoiding blunt contact with those employed in Germany's negative externality, as they tend to be as proud of their export success around the globe as the Danes.  What portion of Danish GDP comes from wind?  (Hint:  one fourth of all Danish export credits go to wind)  In addition to lowered electricity prices, isn't that a positive externality?

As comments here have stated, Germany is quickly growing a vibrant solar manufacturing industry to export.  Mirroring wind.

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin

by Crazy Horse on Wed Apr 28th, 2010 at 03:52:20 AM EST
[ Parent ]
Indeed half of all PV cells produced in Germany in 2008 went for export.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu Apr 29th, 2010 at 06:27:48 AM EST
[ Parent ]
Sad... so the same way wind was braked in 2003 and solar is to be braked this year in Germany, now comes to Spain too. I hope the industry can survive the change in law the same way it did in Germany, and new installations won't collapse like in Denmark.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue Apr 27th, 2010 at 02:01:49 PM EST
Have to say that the solar FIT is, imo, far too high and provides far too high an ROI which fostered the boom/bust cycle in Spain.

Even cutting the solar FIT in half would almost certainly leave it a very profitable investment, more than profitable enough to sustain a good growth curve that would enable constantly lowered cost of production which enables moving the FIT down gradually year-to-year.

Thus, perhaps, cut the FIT in half and reduce it by 1 Euro Cent / kWh or so each year for new installations.  

Blogging regularly at Get Energy Smart. NOW!!!

by a siegel (siegeadATgmailIGNORETHISdotPLEASEcom) on Wed Apr 28th, 2010 at 09:15:28 AM EST
The Spanish solar FIT is nowhere indicated in the diary, what you see is a number per W of capacity (not kWh produced) calculated by MfM.

In actuality, the Spanish FIT for PV was already recuced more than a year ago, leading to a brutal bust in 2009. What you propose, an immediate slashing by half, would amount to a similar bust. To keep the market (and factories' steady output) alive, a more orderly reduction would be okay, say -10-15% each year or half-year. For planning security, it would be best if these degressions are known in advance for at least a year; but the Spanish FIT rates are re-set each year.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Thu Apr 29th, 2010 at 06:24:25 AM EST
[ Parent ]
Thank your for correction & information.  (Actually ... reminder ... had been aware of this and, well, info overload?)  

We're agreed that a planned & well-announced long-term program of gradual FIT reductions is a better path forward.

Blogging regularly at Get Energy Smart. NOW!!!

by a siegel (siegeadATgmailIGNORETHISdotPLEASEcom) on Thu Apr 29th, 2010 at 08:38:49 AM EST
[ Parent ]
I need to dig up the actual regulated tariff chart, it varies by tech, and the chart doesn't mention technologies by has categories.  To figure out what those categories are you have to dig up the law that established it and defined them.  Maybe in a while.

I beginning to think that I shouldn't have calculated those rates for rough comparison, because people are taking them as absolute rates for electric production......

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Thu Apr 29th, 2010 at 11:35:09 AM EST
[ Parent ]


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