antonio lopez martinez-feed in tariff spain case

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Feed in Tariff:S ain Case

Antonio Lopez MartinezAsian Development BankClean Energy Week June 2011



MAIN GOALS OF THE EU & SPAINMAIN GOALS OF THE EU & SPAIN

•• Renewable EnergiesRenewable Energies

12% of primary energy consumption in 2010.12% of primary energy consumption in 2010.

White Paper, 1997 White Paper, 1997

•• Electricit Production from RESElectricit Production from RES

22% of electricity consumption in 2010. Spain 29,4%.22% of electricity consumption in 2010. Spain 29,4%.

Directive 2001/77/CE Directive 2001/77/CE

•• BiofuelsBiofuels

2% of transport consumption in 2005 and 5.75% in 2010.2% of transport consumption in 2005 and 5.75% in 2010.

Directive 2003/30/CE Directive 2003/30/CE



Feed in Tariff (FIT)Feed in Tariff (FIT)

-- most widely used policy in the world of most widely used policy in the world of accelerating RE deployment.accelerating RE deployment.

-- 15,000 MW of Solar PV power and more than15,000 MW of Solar PV power and more than55,000MW of wind power in EU from 200055,000MW of wind power in EU from 2000--2009.2009.

-- responsible for approximately 75% of globalresponsible for approximately 75% of globalPV and 45% of global wind deployment.PV and 45% of global wind deployment.



FIT ConceptFIT Concept-- Drives market growth by providing developers longDrives market growth by providing developers long--

term purchase agreements for the sale of electricityterm purchase agreements for the sale of electricitygenerated from RE sources.generated from RE sources.

-- Purchase a reements t icall offer a s ecified ricePurchase a reements t icall offer a s ecified rice

for every kWh of electricity produced and arefor every kWh of electricity produced and arestructured with contracts ranging from 10structured with contracts ranging from 10--25 years.25 years.

-- Payment level is differentiated by technology type,Payment level is differentiated by technology type,project size, resource quality and project location.project size, resource quality and project location.



THE RENEWABLE ENERGY THE RENEWABLE ENERGY PLAN (REP) 2005PLAN (REP) 2005--20102010Targets of REP 2005Targets of REP 2005--2010 in 2010 :2010 in 2010 :

•• 12.1% of total energy consumption will come from RES;12.1% of total energy consumption will come from RES;

•• Electricity generation from RES will represent 30.3% of Electricity generation from RES will represent 30.3% of

electricity production;electricity production;•• Biofuels will correspond to 5.83% of diesel and petrolBiofuels will correspond to 5.83% of diesel and petrol

consumption in the transport sector.consumption in the transport sector.

New instruments as well as modifications of existing onesNew instruments as well as modifications of existing onesare included in relation with previous policy.are included in relation with previous policy.



Natural gas

38.8%

Pumping 0.8%

Renewable Energies in SpainRenewable Energies in SpainRenewable Energies reached around 20 % of the electricityproduction in Spain at the end of 2008

6

Nuclear 18.7%

Coal 15.9%

Oil 6.0%

.

Wind 9.9%

PV 0.8%Biomass 1.6%

Renewables

19.7%

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



•Competitiveness

•Sustainability

•Competitive energy prices for consumers and

companies.

• Fighting against climate change(CO2 emissions)

•Efficiency and energy saving

•Innovation on clean technologies

Spanish Energy Policy GoalsSpanish Energy Policy Goals

7

•Security of Supply •Diversified energy mix

•Oil stocks, capacity margin on electricity,…

•Cross-border interconnections

RENEWABLE ENERGIES ARE RELEVANT IN ALL THESE TARGETS




Renewable Energies Plan 2005Renewable Energies Plan 2005--20102010

MAIN DATA UP TO 2010:MAIN DATA UP TO 2010:

Public support:Public support: 8,492,22 M8,492,22 M€ €

Total estimated investment:Total estimated investment: 23,598.64 M23,598.64 M€ €

Total energy production:Total energy production: 10,480,526 toe10,480,526 toe Net employment generated:Net employment generated: 94,92594,925

COCO22 avoided emissions (against natural gas combined cycle):avoided emissions (against natural gas combined cycle): 76,983,25476,983,254 tCOtCO22

Spain external energydependency: 99.5% oil dependence 97.1% gas dependence

Wind:Wind: 20,155 MW20,155 MW

Solar photovoltaic:Solar photovoltaic: 400 MW400 MW

Concentrating solar thermal power:Concentrating solar thermal power: 500 MW500 MW

Biogas:Biogas: 235 MW235 MW Biomass:Biomass: 2,039 MW2,039 MW

HydroHydro--electric (<10 MW):electric (<10 MW): 2,199 MW2,199 MW

HydroHydro--electric (10 MW to 50 MW):electric (10 MW to 50 MW): 3,257 MW3,257 MW




Renewable Energies in a competitive marketRenewable Energies in a competitive marketRE RE has has a a higher higher cost cost but but the the system system needs needs RE,RE,why? why?

a)a) MinimizeMinimize outsideoutside energyenergy dependencydependency

..ofof thethe supply)supply)

c)c) DevelopDevelop distributeddistributed generationgeneration ToTo

minimizeminimize transporttransport losesloses..d)d) EnvironmentalEnvironmental IssuesIssues (GHG,(GHG, Kyoto,Kyoto, ……))

9



Renewable Energies in a competitive marketRenewable Energies in a competitive marketConclusions Conclusions: :

-- RERE cancan notnot competecompete inin thethe energyenergy marketmarket..

-- NotNot profitableprofitable inin businessbusiness termsterms..

-- BUT,BUT, wewe needneed RERE..

-- So,So, wewe shouldshould excludeexclude themthem fromfrom thethe

regulationregulation ofof thethe energyenergy marketmarket andand subsidizesubsidizethemthem toto makemake RERE profitableprofitable forfor thethe promoterpromoter..



Mechanism

11.. PurchasePurchase agreementagreement

22.. SubsidizeSubsidize thethe price,price, withwith thethe goalgoal ofof aa

reasonablereasonable profitprofit..

33.. PriorityPriority AccessAccess toto thethe gridgrid..



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

Main aim: Full liberalization of electricity market.Main aim: Full liberalization of electricity market.

Activities regulated by the Law: Activities regulated by the Law:

-- System Management: Market Operator.System Management: Market Operator.

-- Transport activity: System Operator.Transport activity: System Operator.

s a s es:s a s es:

-- Special Regime for renewable energy sources (< 50 MW).Special Regime for renewable energy sources (< 50 MW).

-- Guaranteed grid access.Guaranteed grid access.

-- Producers not obliged to submit bids to the pool.Producers not obliged to submit bids to the pool.

-- Premium price for electricity from RES.Premium price for electricity from RES.

Market: Pool based system.Market: Pool based system.

Regulatory Independent body:Regulatory Independent body:

National Electric Regulatory Commission.National Electric Regulatory Commission.



LEARNING BY DOINGLEARNING BY DOING•• RD 2366/1994.RD 2366/1994. FeedFeed--In Tariff In Tariff

•• Small capacity facilities.Small capacity facilities.

•• RD 2818/1998.RD 2818/1998. FeedFeed--In Tariff.In Tariff.

•• Revision of the tariffs and technologies.Revision of the tariffs and technologies.

•• Increase maximum capacity.Increase maximum capacity.

•• RD 436/2004.RD 436/2004. FeedFeed--In Tariff. Premium.In Tariff. Premium.

•• Revision of the tariffs and technologies.Revision of the tariffs and technologies.•• Windfall profits in the market option. Insufficient developmentWindfall profits in the market option. Insufficient development

of biomass and cogeneration.of biomass and cogeneration.

•• RD 661/2007.RD 661/2007. FeedFeed--In Tariff. Premium.In Tariff. Premium.

•• Cap & Floor.Cap & Floor.



RD 661/2007. MOTIVATIONSRD 661/2007. MOTIVATIONS

The modification of the economic and legal scheme regulating the specialThe modification of the economic and legal scheme regulating the specialscheme in force so far (RD 436/2004) becomes necessary for severalscheme in force so far (RD 436/2004) becomes necessary for severalreasons:reasons:

•• The growth undergone by the special scheme in the last yearsThe growth undergone by the special scheme in the last yearshas pointed to the need to regulate some technical aspects tohas pointed to the need to regulate some technical aspects tocontribute to the increase of thesecontribute to the increase of these technolo ies safe uardin thetechnolo ies safe uardin the

system’s security and guaranteeing its supply quality as well as thesystem’s security and guaranteeing its supply quality as well as therestrictions to the production of the said generation.restrictions to the production of the said generation.

•• Objectives of reference installed capacity are established inObjectives of reference installed capacity are established in

compliance with the objectives in the Renewable Energies Plan 2005compliance with the objectives in the Renewable Energies Plan 2005--2010 and the Energy Saving and Efficiency Strategy for Spain” (E4), to2010 and the Energy Saving and Efficiency Strategy for Spain” (E4), towhich the retribution scheme set out in this Royal Decree shall apply.which the retribution scheme set out in this Royal Decree shall apply.



REMUNERATION MECHANISMSREMUNERATION MECHANISMSThe titleholders of the facilities should choose one of the following options:The titleholders of the facilities should choose one of the following options:

•• Transfer electricity to the system through the transport or distribution grid,Transfer electricity to the system through the transport or distribution grid,therefore being paid atherefore being paid a feedfeed--in tariff for it, unique for all the programmingin tariff for it, unique for all the programming

periods.periods.•• Sell the electricity on the wholesale electricity market. In this case, the electricitySell the electricity on the wholesale electricity market. In this case, the electricity

sale price will be thesale price will be the hour price resulting in the wholesale markethour price resulting in the wholesale marketsupplemented if any, with a premium. In this last case, a new featuresupplemented if any, with a premium. In this last case, a new featuress n ro uce or some ec no og es, a g er an a ower m cap an oor .n ro uce or some ec no og es, a g er an a ower m cap an oor .

The titleholders of the facilities mayThe titleholders of the facilities may choose the most suitable sale options forchoose the most suitable sale options forperiods no shorter than a year.periods no shorter than a year.

Nevertheless, theNevertheless, the participation in the market is encouraged as it is deemedparticipation in the market is encouraged as it is deemedthat inthat in this way, a lower administrative intervention is achieved as regards thethis way, a lower administrative intervention is achieved as regards theestablishment of electricity prices as well as a better,establishment of electricity prices as well as a better, more efficientmore efficientallocation of the system’s costs, particularly regarding the imbalanceallocation of the system’s costs, particularly regarding the imbalance

management cost and the provision of supplementary services.management cost and the provision of supplementary services.



Cap and floor pricesCap and floor prices•• Minimum and maximum pricesMinimum and maximum prices for the overall remunerationfor the overall remuneration

level were introduced under RD 661/2007.level were introduced under RD 661/2007.

•• System reduces the flexibility of the market optionSystem reduces the flexibility of the market option

determined in RD 436/2004 introducing a range for the sum of determined in RD 436/2004 introducing a range for the sum of electricity price and premium.electricity price and premium.

•• Variable premium is determined on an hourly basis. Variable premium is determined on an hourly basis.



CASE 1:CASE 1:

As long as the sum of the electricity market price and the reference premium amounts 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 theto less than the minimum limit, the overall remuneration level is equal to theminimum.minimum.

The resulting premium is calculated as the difference between the minimum level andThe resulting premium is calculated as the difference between the minimum level andthe electricity market price. In this area, the overall remuneration level is constantthe electricity market price. In this area, the overall remuneration level is constantwhereas the real premium declines depending on the electricity market price.whereas the real premium declines depending on the electricity market price.



CASE 2:CASE 2:

If the sum of the electricity market price and the reference premium rangesIf the sum of the electricity market price and the reference premium rangesbetween the minimum and the maximum limit, the reference premium is paid inbetween the minimum and the maximum limit, the reference premium is paid inaddition to the electricity market price.addition to the electricity market price.

Thus, the overall remuneration level increases, whilst the real premium isThus, the overall remuneration level increases, whilst the real premium isconstant.constant.



CASE 3:CASE 3:

Until the electricity price exceeds the cap price, the overall remuneration levelUntil the electricity price exceeds the cap price, the overall remuneration levelcorresponds to the cap and the real premium is calculated as the differencecorresponds to the cap and the real premium is calculated as the differencebetween the cap and the electricity price. The overall remuneration remainsbetween the cap and the electricity price. The overall remuneration remainsconstant and the real premium declines.constant and the real premium declines.



CASE 4:CASE 4:

If the market electricity price exceeds the cap, no premium is paid and theIf the market electricity price exceeds the cap, no premium is paid and theoverall remuneration is equal to the electricity market price.overall remuneration is equal to the electricity market price.



PREMIUM

This new systemThis new system protects the promoter when the income derivedprotects the promoter when the income derivedfrom the market price is too low, and removes the premiumfrom the market price is too low, and removes the premiumwhen the income is high enough to ensure breaking even,when the income is high enough to ensure breaking even,leaving out the irrationalities in the payment of technologiesleaving out the irrationalities in the payment of technologieswhose costs are not directly linked to oil prices on internationalwhose costs are not directly linked to oil prices on international

markets.markets.



FEEDFEED--IN TARIFFS ANDIN TARIFFS AND

PREMIUMSPREMIUMS



ECONOMIC BALANCE OF WIND ENERGY

SUPPORT IN SPAIN (2003-2007 PERIOD)

Wind Energy Balance (2003Wind Energy Balance (2003--2007)2007)

“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



Photovoltaic Installed Capacity (MW)

2500

3000

Results: PhotovoltaicResults: Photovoltaic

25

REP objective

85% of the objective

0

500

1000

1500

September 2007 September 2008




2.2502.250

20 MW

50 MW3.343 MW

50 MW

60 MW

150 MW

150 MW

100 MW

50 MW

200 MW

2.628 MW

90 MW

3.793 MW

20 MW

50 MW3.343 MW

50 MW

60 MW

150 MW

150 MW

100 MW

50 MW

200 MW

2.628 MW

90 MW

3.793 MW

CSP: Objectives & Expected EvolutionCSP: Objectives & Expected Evolution

11 11

1.198

10 50

200

350

131

331

2.048

500

0

250

500

750

1.000

1.250

1.500

1.750

2.000

2006 2007 2008 2009 2010 2011

ESTIMATED

PER

11 11

1.198

10 50

200

350

131

331

2.048

500

0

250

500

750

1.000

1.250

1.500

1.750

2.000

2006 2007 2008 2009 2010 2011

ESTIMATED

PER

Total with access to:

Transport grid: 10.064 MW

Distribution grid: 2.667 MW

11,02 MW

2.049 MW

Total with access to:

Transport grid: 10.064 MW

Distribution grid: 2.667 MW

11,02 MW

2.049 MW

Status of projects under

final approval / execution on06.11.2008




Thank you.Thank you.

For more informationFor more information

AntonioAntonio [email protected]@adb.org

antonio lopez martinez-feed in tariff spain case

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