The PV market in Spain is showing signs of a shift from premium incentives (now in moratorium) to demand based upon the increasingly competitive cost of PV electricity. Early signs of this shift include PV project announcements related to “macro” PV installations (>50 MW) that are destined to sell electricity on the wholesale market without premium incentives or regulatory guarantee of electricity purchase.
Market barriers provide an uncertain backdrop
Among the many barriers that exist to successfully realizing these propositions, the lack of a guarantee may turn out to be the ‘final straw’, due to the risk-averse financing market. (Historically, the European PV market has grown largely due to regulatory shelter guaranteeing, whereby electricity production is purchased or otherwise compensated.)
While PV companies that are developing the macro projects have suggested being sheltered within the EU Directive 2009/28/EC (NREAP), the wholesale market operates specifically on ‘demand/offer’ terms. Therefore, terms specific to contracts in place provide the only firm guarantees.
In Spain, the traditional generating capacity operating in the wholesale market has been financed by development companies such as Iberdrola and Endesa. While the PV companies now developing the macro PV projects may have ‘Tier-1’ assignation, they may not possess the financial or influential resource of the traditional electric-construction companies. Some macro PV developers have commented on potential investors having a long-term outlook, anticipating that wholesale prices will rise more than in recent times.
Other barriers to successful realization of the macro projects include the cost of PV electricity according to a viable discount rate; the requirement for PV module prices to drop more than currently projected; the requirement for balance-of-systems (BOS) costs to drop more than reasonably expected; the need to overlook a significant generating over-capacity situation (100 GW of generating capacity applied to a 44 GW peak demand); and limited international transport of electricity (currently about 1 GW).
Currently, several of the macro projects have satisfied the necessary regional governmental support and transport grid initial-operation approval. The permitting stream begins with those regional concepts, but continues with national administration of environmental impact studies, as well as administrative authorization – each of which could result in denial.
Potential Viability Scenario
Developers of macro PV projects indicate that installed system prices of approximately €1/Wp by the end of 2013 would be sufficient to commence construction on a 250 MWp project at this time. The figure shows a levelized cost of electricity (LCOE) model at that price point, assuming electricity production according to a net performance ratio of 65% (annual average) that includes an optimistic transformer losses estimation, and 2,050 peak sun hours (annual average) on an optimally tilted and fixed array. No taxes or other expenses are included other than first cost and annual operating costs (1.1% of first cost) on the term, and annual performance degradation is -0.4%. The Pool Rate is shown rising 3% per year.
Optimism for 2014 market impact?
There seems to be limited opportunity for Spanish macro projects during 2012. Presently, the barriers to successful realization outweigh the market-drive of competitive cost of PV electricity at the wholesale level (at least until after 2013, and only if optimistic price projections become reality).
It seems most likely that it will evolve into a market for traditional electric-construction companies who may, or may not, need to avail themselves of project developments. Also relevant is the fact that holding back on construction may result in projects (at potentially lower cost) competing in a wholesale market with a higher sell rate.