Spain’s Second Solar Boom, and Possible Market Failure?

New solar installations in Spain have soared since the institution of new, more ambitious national renewable energy goals and regulatory reforms, including rescinding regulations that essentially taxed self-generation of renewable electricity produced by homeowners with behind-the-meter (BTM) solar energy systems sent on to the national grid. Spain’s second solar boom has raised concerns that the makings of a second market failure are in the offing, however.

Installed Solar PV Capacity in Spain 2015-2018
Chart: TaiyangNews

Some 261.7 megawatts (MW) of new solar photovoltaic (PV) generation capacity was installed in Spain in 2018, according to a February 2019 report from Spanish solar energy association Uniốn Española Fotovoltaica (UNEF). That’s 94% more than the 135 megawatts (MW) added in 2017. UNEF believes new solar capacity could surge as high as 400 MW this year.

Spain is one of the countries leading the solar renaissance in Europe. Strong political backing, current high installation activity and a large solar project pipeline are reasons to assume that demand will remain very strong over the next couple of years.

—SolarPower Europe Policy Analyst Raffaele RossiSolar Magazine Interviewee Avatar told Solar Magazine

Lax regulation requirements, more particularly low application fees for a limited number of grid interconnection points and not needing to provide much proof of project development experience, resources or the intention to actually develop projects, have generated speculative fever as applicants file the documentation needed to gain approval to interconnect to the national grid, which is run by Red Electrica de España.

Soaring demand, and prices, for grid connection permits

“Speculators are securing permits to pump power into the grid, which are currently available in exchange for a financial deposit and loose controls on their ability or intention to build a plant, the national competition watchdog has warned,” Reuters reported in July. The Spanish government already has announced goals of phasing out both nuclear and coal-fired power generation, adding to the speculative fever.

All told, four-times more than Spain’s existing solar power capacity in the way of permit applications, and counting, have been filed, according to industry figures. That has raised concerns of a repeat of the crash that occurred about a decade ago that drove Spain’s government to the verge of bankruptcy.

SolarPower Europe’s Medium Scenario for the European market calls for solar power capacity to soar 80%, a total of 20.4 GW this year, and 18%, to 24.1 GW in 2020, surpassing 2011’s record high. UNEF expects investments in new solar power capacity in Spain will surge higher, by anywhere from €4 billion to €5 billion by 2020.

Spain’s solar generation capacity would amount to four times that consumed on average by the country’s 84 million households if all the solar-to-grid interconnections already applied for, a total of some 37 GW as of end-May, with Red Electrica were to be brought online. It’s highly unlikely all those projects will be developed, market participants and analysts believe.

Nearly 70 GW of new solar capacity-to-grid connections had either applied for or been denied access as of end-May. By comparison, Spain’s installed solar capacity only totaled around 5 GW, far less than leading European countries, such as Germany and Italy, according to S&P Global.

The Investment Plan (2018-2022) of Red Eléctrica de España to Facilitate Spain’s Energy Transition
Chart: Red Eléctrica de España

Renewable energy policy reform and soaring solar energy self-consumption

The Spanish Experts Commission expects the solar power target to be incorporated within Spain’s Régimen Retributivo Específico’s (RES) 2030 renewable energy targets, which they expect to be set at around 27%, or 47 GW. Enacted in October 2018, the primary aim of the new version of the RES is to establish a renewable energy-to-grid tariff regime for continental Spain’s electricity system.

A surge in self-consumption, or behind-the-meter installations, was the main driver for 2018’s increase, accounting for 90%, or 235.7 MW, of new capacity. The government rescinded a requirement that charged a fee for homeowners and other behind-the-meter systems operators for delivering electricity on to the national grid fueled the surge, according to industry stakeholders and analysts.

That said, new solar installations in Spain accounted for just 3% of the 8.5 GW of newly installed, emissions-free, solar electricity generation capacity across the European Union (EU) last year, UNEF highlighted.

Renewable energy self-consumption is free from any charges as a result of the new RES and permitting procedures have been simplified. So-called RES-E electricity “prosumers” are entitled to grid connections and priority dispatch to the power grid. In addition, RES-E generators are entitled to extensions to connect to the grid if required.

Government authorities are exploring ways and means and taking actions to prevent another market failure that are in alignment with EU and national climate and renewable energy goals. In July, Spain's Comisión Nacional de los Mercados y la Competencia (CNMC) proposed new rules to slow down the surge in grid access applications and deter speculation. Spain's environment ministry is taking similar steps.

Forestalling a second potential market failure

Market prices for shovel-ready solar projects, in particular, have soared amid the boom in solar power grid access requests. Prices reached €80,000 to €150,000/MW but were reportedly offered as high as €200,000/MW, according to S&P Global’s market report.

Iberdrola Plans to Construct Europe’s Largest Solar Farm in Extremadura, Spain

Elected in April, Spain’s social-democratic Socialist Workers’ Party, or PSOE, and Acting Prime Minister Pedro Sánchez need to form a coalition to assume government leadership, something they have yet to be able to do. That, in turn, has all but stalled legislative efforts, including that to do with solar and renewable energy, Lux Research research associate Patricia Seoane da SilvaSolar Magazine Interviewee Avatar told Solar Magazine.

UNEF General Manager José DonosoSolar Magazine Interviewee Avatar believes a repeat of the 2007–2008 solar market failure will be averted despite the various obstacles, which are primarily political, procedural and administrative in nature.

Not speaking about the same technology, or market conditions

We’re not speaking about the same technology in 2019 as we were in 2007–2008 [with solar PV having emerged as the predominant form of solar power generation technology]. Sharply falling costs have made solar PV much less expensive, much cheaper and competitive with fossil fuels. The need for subsidies is nowhere near as great.

— Donoso said in an interview

“That changes everything. Now, new developments are of a different, much larger dimension than they were 10 years ago. There’s also a higher degree of market competitiveness,” Donoso continued.

“New players are entering the market and competing for PPAs (power purchase agreements) and signing contracts with customers. That gives government regulatory authorities a high degree of confidence and assurance regarding projects progressing through to completion.”

National Flag, Solar Panels and Blue Sky: Solar Energy Development in Spain

A lot more solar and renewable power capacity will need to be installed in Spain whatever stripe of political party or ruling coalition leads the national government going forward, Donoso pointed out. Political pressure to achieve the EU’s recently established goal of emissions-free renewables providing 32% of the regional bloc’s overall energy needs and Spain’s associated national targets provide a strong impetus for the government, and incentives for industry participants, as well. Spain, for its part, has set even higher goals of renewables meeting 42% of overall energy needs by 2030 and 100% by 2050, he highlighted.

Taking steps to avert a second solar market failure

Solar Magazine: Solar Industry News and Insights

Building out new grid interconnections points and transmission and distribution infrastructure are keys to smoothing the way forward, according to Donoso, as is streamlining and speeding up the solar project licensing and permitting processes. “There needs to be a willingness to move the administrative and grid interconnection processes forward quickly and smoothly. If developers have a new interconnection point, development will proceed faster, but typically you need five years to build out new transmission lines,” Donoso told Solar Magazine.

Like Donoso, Lux Research’s Seoane da Silva believes a solar market failure will be avoided. “I wouldn’t say a bust is imminent or will happen. Spain is lagging behind other countries despite all these targets, and still lacking in terms of rules, regulations and transparency,” she said.

Seoane da Silva thinks project activity will slow down going forward, developments that hinge on the ability to form a government and get the government and regulatory apparatus back on track. “Everything is boiling down to regulation. The market isn’t very consolidated. A lot needs to happen on the regulatory side...We’ll have to wait and see what happens in the next legislative session. It looks as though parties that want to move reform forward will have a role in the new government,” she concluded.


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