Spain faces “renewable bubble” in green energy push

Nov 7, 2019 | Montel

(Montel) Spain is facing a renewable energy “bubble” as a push to treble wind and solar capacity by 2030 comes amid falling development costs but risks saturating the market and drying up investment, an advisor for Spanish utility Audax has said.

As the Iberian nation gears up to launch annual green energy tenders of 6 GW, investors have been keen to get into the market early – mainly by way of power purchase agreements (PPAs) – and secure administrative permits to develop their projects.

“Permits are pure gold. Ready-to-build projects are being [sold] above EUR 150,000/MW, when previously [a few years ago] they were around EUR 50,000/MW,” Jaime Jaquoutot, PPA advisor for Audax, said at Montel’s Spanish Energy Day in Madrid on Wednesday.

Audax has secured generation from 1.7 GW through PPAs, nearly half of Spain’s 4 GW of new PPA-linked capacity in the last two years.

Spain aims to treble combined wind and solar capacity to more than 94 GW by 2030, according to its national energy plan, in line with EU-wide efforts to cut greenhouse gas emissions.

And much of that new capacity will help fill in the gap from Spain’s coal-fired power plants that will be gradually phased out in the coming decade.

Yet Jaquoutot said there was risk of flooding the market with new capacity, particularly in the solar sector. Spain’s photovoltaic capacity is expected to rise from the current 4.7 GW to nearly 37 GW by the end of the next decade.

“For 2030, with 40,000 MW photovoltaic capacity we have more than enough. But there is no room for more than 120,000 MW [in grid access points] requested,” the Audax executive said, pointing to speculation with grid access permits, as some market participants have been requesting connections to resell them to green developers.

Bubble risk
His concern of a “bubble” may also reflect a backwardation of wholesale power prices, where longer-dated contracts are cheaper than those closer in on the curve.

So not only is there limited space for new capacity, the sooner a low-variable-cost plant connects to the grid, the bigger profit it could have.

For instance, the Spanish Cal 20 project is trading around EUR 54/MWh, well above the Cal 25 at EUR 45/MWh – meaning better margins for developers soon rather than later.

A further drag on power prices in the future could render green investments unprofitable, Jaquoutot said.

“Right now, almost every project in Spain, Portugal and Italy is subject to this risk. Those who don’t [secure financing quickly] will see the bubble bursting in their faces,” he added.