For most Spaniards March 20 was a windy Tuesday that has already faded from memory. But for the country’s renewable energy sector it became an unforgettable day when, at 5.40pm, favourable gusts from the Atlantic increased wind energy production to a record high.
At this historic moment, thousands of 100-metre-high wind turbines towering over Spanish hillsides produced 8,375 megawatts of power, representing 27 per cent of Spain’s total electricity supply; more than nuclear, coal or any other single energy source. Just over 72 per cent of the country’s total installed wind capacity of 11,500MW was pumping power into the national grid. Savings in terms of lower imported oil costs and CO2 emissions would also have been at a maximum.
Last year wind energy produced quantifiable benefits for Spain totalling more than €2bn, against €900m in tariff premiums paid to producers, according to José María González, head of the Renewable Energy Producers’ Association (APPA). The sector has also created about 35,000 jobs.
During the past decade, rapid growth and big investments have made Spain the world’s second biggest producer of wind energy after Germany and slightly ahead of the US. The country is also a frontrunner in other renewable energies including solar power and bio fuels. This focus has helped build Spanish energy companies into world leaders in terms of global investment, installed capacity and technological innovation.
“Spain has created a cluster of knowledge in clean energy that sets it apart from most other countries,” says Miguel Salís, who manages two private equity funds dedicated to renewable energy investments. “This has enabled Spanish groups to invest successfully in other markets where there is huge potential for growth.”
Gamesa is one of the world’s top three manufacturers and installers of wind turbines, with a global market share of just under 16 per cent. Last year it installed 1,863 wind turbines with a total capacity of 2,402MW, enough to supply six big cities with electricity.
To date, Gamesa has installed a total of 10,000MW of wind energy capacity in 20 countries and has another 10,000MW in the pipeline. It launched its first production plant in China last year and four others in Pennsylvania in 2006.
Iberdrola, Spain’s largest power group, became the world’s biggest producer of electricity from wind turbines following its recent €17.2bn purchase of Scottish Power. In May, the company announced plans to spin off up to 20 per cent of its renewable energy division, which analysts value at more than €15bn.
Before the first clear signs this year that Spain’s property boom was beginning to wane, several big construction groups had diversified into renewable energy. Acciona Energia, for example, is now one of the world’s biggest wind park developers. The two funds managed by Mr Salís – Eolia Mistral and Eolia Gregal – are also beginning to invest outside Spain; mainly in Europe, the US and India. The funds, totalling €160m, have made 26 investments since 2004, in projects representing 950MW of wind and 50MW of solar capacity, as well as three bio-diesel plants. Mr Salís hopes shortly to list the funds publicly.
“Spanish renewable energy companies need funds to finance their big expansion plans at home and abroad,” says José Guardo, head of the renewable energy project finance department at Garrigues, a leading Spanish law firm. “At the same time, there is a great deal of investor interest in a sector that has immense potential worldwide.”
Spain’s leadership in renewable energy is partly a result of natural conditions. Being Europe’s second most mountainous country after Switzerland and – with twice the area but only two-thirds of the population of the UK – one of the least densely populated, ensures a favourable climate for wind and solar energy as well as the space to install turbines and photovoltaic panels without meeting much public resistance.
An even more important factor has been Spain’s early adoption, in common with Germany, of tariff premiums. The system provides producers with a guarantee that all the electricity they produce will be purchased by distribution companies at different premiums over the market price depending on the type of renewable energy involved. By offering producers an attractive return and providing a guarantee of stable income for them to raise bank finance, the system has encouraged big investments and resulted in remarkable growth, particularly in wind energy.
In May, after a year of intense lobbying by producers, the government published a long-awaited revision of the regulations. Although, as expected, the new provisions are less generous in terms of remuneration for new producers, fears of a tight cap on premiums or the retroactive application of new restrictions to existing installations proved unfounded.
Mr González, whose association represents more than 350 companies including the industry leaders, had warned the government that tough restrictions would destroy investor confidence and jeopardise plans to provide 20 per cent of Spain’s energy needs from renewable sources by 2020, up from just under 7 per cent today.
In the event, the APPA said the government had listened to producers and tabled positive revisions that would ensure the long-term stability of the sector. Erwin van Lumich, a senior analyst with Fitch Ratings, says the new regulations would “boost the confidence of large investors in the Spanish renewable energy market.”
