Elsevier

Applied Energy

Volume 170, 15 May 2016, Pages 329-344
Applied Energy

Evaluating the 2014 retroactive regulatory framework applied to the grid connected PV systems in Spain

https://doi.org/10.1016/j.apenergy.2016.02.092Get rights and content

Highlights

  • Analysis of the RD 413/2014 new economic and regulatory framework for GCPVS.

  • Description and formulation of the new remuneration scheme.

  • The simplified model proposed is able to identify the most influential regulatory parameters.

  • The economic indicators of the undertaken case study reveal a substantial lost in profitability.

Abstract

The RD 413/2014 new economic and regulatory framework for producers of electricity from renewable energy sources in Spain has been here analysed, putting the focus on its impact on the economic results of the existing grid connected PV systems. A complete formulation of the new remuneration scheme is first presented, making evident its high complexity and the great number of regulatory parameters involved. Then, in order to facilitate the discernment of its operating mechanism a simplified model is proposed. This approach has proven to be a useful tool to identify the most influential regulatory parameters and also which could be the plausible future regulatory actions in order to contain the cost to the Spanish Electricity System. Finally, the NPV and the IRR among other indicators are calculated for a representative case study facility, evidencing a substantial profitability reduction in the transition from the former economic and regulatory framework to the RD 413/2014 new remuneration scheme.

Introduction

From early 2000s, the renewable energy policy of the European Union (EU) has boosted the electricity from renewable energy sources (RES-E) throughout Europe [1], [2]. As a result, in the recent period 2011–2013 at least three EU countries (Germany, Spain and Italy) were among the top 5 performers in the world with highest rates of renewable capacity per capita (excluding hydropower) [3], [4], [5], [6]. Moreover, in the case of photovoltaic (PV) capacity, these good results were even better. Since 2006, the EU has accounted for more than half of the total worldwide PV capacity. Once again, at the top of the PV global rank in 2013 were Germany (35,715 MW), Italy (17,928 MW) and Spain (5,340 MW).

All the countries occupying the first positions in the PV promotion had adopted the feed-in-tariff (FIT) mechanism [3], [4], [5], [6], [7]. Notwithstanding the excellent results achieved, the fact remains that the FIT has been blamed for some malfunctions in the electricity sectors of the implementing countries. One of the most important malfunctions was the so called “call for inversion” effect, responsible for the exponential growth of the PV capacity and the cause of the overrun cost to the electricity systems of these countries.

Despite these malfunctions the FIT mechanism continues to be used and, consequently, is one of the key elements analysed in the scientific literature of the last years. For example, attention has recently been focused on the FIT for promoting RES-E in the United Kingdom as a vehicle towards to a low carbon transition, reviewing again the pros and cons of this mechanism, specially its inherent boost effect [8], [9], [10], [11]. As well, concerning the effectiveness of the FIT mechanism in avoiding CO2 emissions, it is possible to find recent studies related to countries such as Germany, Taiwan, Malaysia or Australia [12], [13], [14], [15]. The German experience has also been used as a reference for comparing the German FIT against other promotion mechanisms [16], and for countries such as Japan and Kenya, the prospects of the evolution of the grid connected PV systems (GCPVS) have been analysed taking into account the FIT mechanism in their models [17], [18]. Likewise, when analysing different values and grades of support to energy storage systems facilitating the large-scale the integration of wind energy, the FIT mechanism has been praised as an effective tool [19], [20].

Nevertheless, two new regulatory trends appeared in the countries that applied FIT mechanisms and experienced a power capacity boom far exceeding their policy objectives, especially for GCPVS. The first of these trends was the introduction of limiting regulatory elements for the new facilities to be installed [21]. Spain, which due to the malfunction of the FIT mechanism led the PV market in 2008 [22], was one of the first countries that introduced these modifications in the international context [23]. In this regard, Italy, the second country in the PV global rank in 2013, did not take into account the 2008 Spanish experience to prevent the malfunctions of its FIT scheme and saw how its PV capacity even exceeded the exponential growth that occurred in Spain. This evolution finally forced Italy to introduce limiting arrangements – capacity caps – in their PV legal frameworks [5].

The scientific literature devoted to analyse the overrun cost to the electricity systems caused by the existing GCPVS has concentrated its attention on the world leading countries in PV capacity, namely, Germany, Italy and Spain. As early as 2008, the cost of the GCPVS promotion was studied in the case of Germany [24], [25], and this concern has been followed keenly to date [26], [27], [28], [29], [30]. Comparatively, the Italian and the Spanish cases have received less attention in the scientific literature. With regard to Italy, the cost introduced by the FIT scheme to the electricity sector is discussed in [31], [32]. With respect to Spain, the benefits and costs of the RES-E promotion are discussed in [33] for the period 2002–2011, and in [34] the cost to the Spanish Electricity Sector (SES) of the GCPVS installed in 1998–2008 is analysed for all their regulatory lifetime.

The second regulatory trend has involved applying retroactive measures to mitigate the economic burden that the promotion of RES-E had introduced in the electricity systems. Despite the importance in terms of legal security and the economic implications that these measures might have had on the economic results of the pre-existing facilities, there have not been many studies in the scientific literature analysing this subject. Spain was one of the countries that started to undertake these retroactive measures [34], as well as other countries did, such as the Czech Republic, Bulgaria and Greece [5], [35], [36]. The retroactive measures adopted in the Czech Republic and Greece are outlined in [37], [38], [39], [40]. The measures undertaken in Spain in the period 2010–2013 are briefly described in [38], [39], [41], [42], [43], [44], [45], [46], [47] and are discussed in greater detail in [34], [48] assessing the economic impact on the GCPVS through their regulatory lifetime.

The importance and relevance of the regulatory retroactive activity in Spain in the international context in terms of economic impact can be easily understood when taking into account the high exposure that the international funds have in Spanish renewable energy assets, no less than 13 billion Euros. As a consequence, Spain is seeing how these international investors are proceeding with a flood of legal actions under the Energy Charter Treaty or under the European Law against these retroactive measures [49]. Spain ranks first when considering the number of Renewable Energy Claims faced under the Energy Charter Treaty, and some authors highlight that this might be the beginning of a boom of renewable energy arbitrations [50]. The result of one of these arbitration processes is already known and gave judgment in favour of Spain [51]. However, this judgment concerns the first retroactive measures enacted in 2010 to mitigate the economic burden of the promotion of the RES-E. It does not apply to the new retroactive regulatory activity in Spain that gained further momentum in 2014 with the issuance of a new economic and regulatory framework (RD 413/2014) applying retrospectively to all the renewable energy facilities existing prior to its entry. The 2014 new Spanish retroactive measures might have a crucial economic impact not only on the national renewable energy facilities but also on an international economic context due to the high exposure of the international funds in Spanish renewable energy assets. Nevertheless, to the authors’ knowledge the economic effect of the 2014 new retroactive regulation on the pre-existing GCPVS has not yet been studied.

Following this gap and on the basis of the methodology applied by the authors in [34], this paper contextualizes the new economic and regulatory framework enacted in 2014 in Spain for the pre-existing GCPVS. Due to its importance in numbers and its impact on the cost of the SES [22], [34], the paper focus its attention especially on those facilities under the RD 661/2007 that were put into service in 2008. In the paper the new economic model is described and formulated, being its most influential parameters identified (Section 2). Next, the implications of the new economic framework are analysed, as well as the plausible regulatory decisions related to the new economic scheme that the Government might undertake in order to limit the economic burden of the promotion of GCPVS for the SES (Section 3). Hence, the economic impact of the new framework on the chosen pre-existing GCPVS is evaluated and its effect on their viability is assessed and discussed (Section 4). Finally, all the factors deemed relevant for the evolution of the PV sector during the period of analysis are duly systematised and conclusions are raised (Section 5).

Section snippets

Setting the context

In July 2013, the Spanish Government enacted the Royal Decree-Law (RDL) 9/2013 [52] addressed to guarantee the financial stability of the SES. In what has to do with the GCPVS, this RDL broke with the philosophy applied so far which had introduced cost containment measures without dismantling the established economic frameworks.1 Thus, the RDL 9/2013 abolished

Model formulation: deconstructing the economic framework

The intrinsic complexity of the RD 413/2014 framework, with a great number of parameters and the uncertainty associated to their future evolution, severely hampers understanding its effects on the economic results of the GCPVS. To clarify this issue, a simplified economic model is proposed below.

The considered simplified model is based on the formulation in a year i of the earnings before interest, taxes, depreciation and amortization of the facilities (EBITDAi), which can be expressed as:EBITDA

The economic impact on the GCPVS of the RD 413/2014 new remuneration scheme: case study of a 100 kW facility

In this section, the impact of the RD 413/2014 on the economic results of the GCPVS and on their cost to the SES will be illustrated by means of a case study. With the aim of covering the most representative group of GCPVS in Spain it has been selected a 100 kW facility obtaining the operating permit in 2008 under the RD 661/2007 (see Fig. 2). Specifically, a facility of the type IT-00030 has been chosen, as this type may represent GCPVS sited at roof or at ground. The main characteristics of

Conclusions

This paper has analysed the RD 413/2014 new economic and regulatory framework for RES-E producers in Spain, placing the focus on its impact on the economic results of the existing GCPVS.

In order to undertake this analysis, a detailed description and a precise formulation of the RD 413/2014 new economic model have been provided. The great number of regulatory parameters involved and the very complex nature of the new remuneration scheme have revealed as the main factors that hamper getting a

Acknowledgements

The authors are especially grateful to all those persons and companies from the PV sector who (confidentially and anonymously) have contributed to a better understanding of the PVS reality in Spain. This work has been partially supported by the research project DPI2011-28021, Ministerio de Ciencia e Innovación (MICINN).

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