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After two years, Spain's beleaguered domestic wind market is beginning to emerge from its state of paralysis triggered by the right-wing government's anti-renewable energy reforms.With an election looming before the end of 2015, the government has promised a 500MW auction on the mainland this year, in addition to an ongoing 450MW public contest in the Canary Islands.

"We're still fighting the reform, but the domestic focus of Spain's extensive industry is moving away from axe-grinding and towards doing business," says Heikki Willstedt, policy director at Spanish wind energy body AEE. Nevertheless, he describes the new capacity auctions as offering "peanuts" compared with the 3.5GW installed in the record year of 2007.

That contrasts with last year's installations, which, as a result of the reforms, reached just 27MW, barely a ripple on Spain's 23GW cumulative total. Meanwhile, the government faces more than 100 litigations against the reform at home, plus 16 calls for international arbitration. "I am aware the (wind) sector has had it hard," admitted European energy and climate commissionaire Arias Canete, from Spain's governing right wing People's Party (PP), when inaugurating AEE's annual congress in June. "But I am confident investments will return." His presence in itself marked a change in attitude to the sector by the PP, which last year failed to send any high ranking officials to AEE's conference.

Sharing the inaugural session was Teresa Baquedano, director general at Spain's energy ministry. She outlined the government's ongoing energy plan to 2020, which sets a target of 4.5GW-6.5GW of new wind capacity to 2020. Baquedano said that the government was also drafting plans to enable wind to participate in the ancillary - and profitable - grid market of frequency control, hitherto denied to wind.

Baquedano told delegates used to the government's habitual attacks on renewables as costly, that she recognised the domestic wind industry's strength as a "creator of employment and sustainability" and as "an example to be applied to other sectors".

In the corridors at the congress, delegates widely suspected Canete and Baquedano of electioneering, especially given the growing likelihood of an end to the PP's term in office in the general election - another contributing factor to the sector's upbeat mood. In May, the party suffered a devastating blow across the country in local and regional elections; a backlash against austerity measures together with corruption scandals affecting high-ranking PP officials.

Election hopes

During the political round table session, heads of the energy departments of the ascendant opposition parties - the Spanish Socialist Workers' Party (PSOE), Podemos, Equo and Ciudadanos - all promised to "reform the energy reform" and bring renewables, and especially wind, back centre stage. Podemos, which sprouted from the antiausterity movement, is now Spain's second political force. Like AEE's outgoing president, Jose Lopez Tafall, the opposition parties also called for a state energy pact across all political parties, based on a complete audit of the electricity sector and consensus on long-term energy goals. All strongly criticised the current government's total lack of dialogue in pushing through its draconian energy reform by emergency decree.

Electioneering aside, there could be some substance to the government's wind pledge, admits Willstedt. On taking office in 2011, the government was single-minded in tackling a EUR25 billion "electricity tariff deficit" within Spain's already cash-strapped economy. Now, with the annual deficit slashed to zero - through massive cuts to renewables and raising electricity bills - wind's contribution to local economies and employment may again appeal, says Willstedt.

Spanish firms own 40GW, or 10.5% of global installed capacity, Tafall said at the event. Spain's industry has produced 12% of wind capacity worldwide, employing 90,000 people and avoiding over 70 million tons of CO2 emissions; indeed, the Spanish industry is surviving largely from its export markets, he said. But, it is ready to create 10,000 jobs at home by installing 7GW to 2020 given the right conditions, he added.

Deep cuts

But conditions are not right. The reform ended the price support mechanism for wind, replacing it with an investment subsidy for old and new capacity alike. No wind farm connected before 2004 receives any subsidy at all, despite an earlier state promise to maintain incentives over a 20-year life span. For the remainder, the regulation supposedly aims to generate a pre-tax "reasonable profit" of 7.39% for each wind plant, which translates to around 5.17% post tax, compared with double-digit figures prior to the reform. Worse, the reform calls for a renewal of the "reasonable profit" rate every six years, which adds further uncertainty. In total, wind operations lost around 45% of income last year through the reform, according to AEE figures. "Now, the same government that did all that is asking investors to commit long-term - a big ask," says Willstedt.

"The proof of uncertainty is in the pudding," he adds, pointing to the 450MW public call to tender in the Canary Islands, issued in late 2014. A tender called in 2010 was fully subscribed, before it was cancelled during the energy reform process. "So the projects are ready to go. Yet the current call has attracted just 14MW." The government has extended the deadline by one year to the end of 2016. "Of course, developers could be holding out for a better post-election deal," he admits.

Urgency

The mainland auction, promised by September, is not likely to be commissioned until 2017, says Willstedt. "We need more initiatives, and fast, if the sector is to build 1GW-1.1GW annually to 2020, in line with new planning."

The auction will take the form of capital expenditure (Capex) per megawatt for developments nationwide, and the lowest bidder wins. The starting Capex is set at EUR1.1 million/MW. But independent agencies, such as Bloomberg, put the market standard at EUR1.2-1.3 million/MW, AEE says. "We're supposed to bid below a figure that is already set too low," says AEE technical director Alberto Cena. AEE believes the auction is implicitly aimed at the repowering market - replacing old turbines for new - based on government estimates that installed repowering capacity costs 10-15% less per megawatt, due to existing infrastructures. AEE puts the reduction in costs at 7%.

"There are not as many synergies in repowering as might be expected," says Gaspar Iniesta, head of the Wind Power Excellence Centre at Italian utility Enel Green Power, one of the few developers to repower in Spain. In any case, straightforward repowering without applying for new permits will not increase installed capacity, says Cena as plated power capacity at such sites will remain the same, albeit with greater output.

Developing action

"How much capacity are you developing in Spain?" “uåX˜äŠÊ˜·³Ç asked during the AEE event CEO round-table session, addressing bosses from wind developers Acciona, Gamesa, Iberdrola, Enel Green Power and EDP Renovaveis. "None," was the answer all round, everyone blaming financial uncertainty.

Outside in the corridors of the wind congress, however, employees of those same firms confided they were manoeuvring for the coming auction, especially for mature projects with turbine agreements signed prior to the energy reform.

Smaller developers appeared even more active. Manuel Crespo, managing director of developer AboWind's Spanish operations, said his company was increasing its development portfolio in Spain, which already exceeds 800MW. "Sooner or later, Spain will need thousands more megawatts of wind capacity," said Crespo. The framework will be very different, margins much tighter and greater attention to operations and maintenance will be needed. "But it will inevitably come," he said.

Underlining such inevitability, Joshje Muth, senior consultant at German energy think-tank GIZ, told event delegates that renewables are shuffling for central stage at the UN climate summit in Paris at the end of the year. GIZ estimates that around 50% of Europe's installed power capacity is over-aged, with nuclear and coal the main culprits. New nuclear, as proven by the Hinckley Point project in UK, is now costing €112/MWh, the same projected cost as for combined cycle gas for 2019, whereas new onshore wind in Germany is costing less than €60/MWh.