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Ten-year-old wind power plants stripped of subsidy entitlement

Industry Ministry sets “reasonable return” of 7.4 percent for renewable energy installations

Wind farms that were licensed before 2005 will cease to receive premium rates for the electricity they produce because they “have surpassed a reasonable rate of return” from their activities as defined by the new parameters proposed by the government for the renewable energy sector.

According to the proposals, wind farms set up prior to that year will receive only what they can sell their electricity for in the market and will cease to receive subsidies.

The Industry and Energy Ministry included the proposal in the new regulations regarding the premiums paid for electricity generated using renewable resources it has sent to the CNMC antitrust watchdog. The premiums paid are being cut in the wake of a controversial reform of the sector in order to help reduce the so-called tariff deficit — the difference between what power utilities claim costs to produce electricity and what they are allowed to charge consumers for it.

In response to a suit by a number of photovoltaic renewable energy producers who complain that the Spanish government has unfairly changed the rules of the game, the Supreme Court has ruled that the cuts did not infringe the legal security of investment and were justified by the need to trim the tariff deficit in the public interest.

The documents sent by the Industry Ministry to the CNMC, which make up 1,500 pages, establish 1,400 standards to set the return of renewable energy producers based on size of the investment made, when it was made and efficiency. It identifies 806 types of installations for electricity produced by cogeneration plants, which also produce heat, 576 for photovoltaic installations, 23 for wind farms and 18 for thermosolar plants. It also lists a series of variables such as capacity, the technology used, modifications to the installations and the year in which they were licensed to determine what constitutes a reasonable return. They also establish the useful life of these installations at 20 years for cogeneration plants, 25 years for thermosolar and 30 for photovoltaic installations.

The proposed average return set for renewable energy and cogeneration installations already in operation has been set at 7.39 percent and at 7.50 percent for future installations. The average return for renewable plants previously reached 14 percent in 2005. The government calculated a price for renewable energy of 49 euros per megawatt hour for 2014 and 50 euros per MWh for 2015. The proposed returns are calculated for a period of six years and are subject to review every three years.

50 billion in premiums

The government estimates that the reforms will save the state coffers 1.75 billion euros. Under the previous system, total premiums paid out between 1998 and 2013 are estimated at some 50 billion euros. The increase in funding between 2005 and 2013 was 800 percent.

Apart from the reasonable return concept, the proposals call for a 1-percent annual increase in retributions over the useful life of a renewable energy plant.

In calculating returns, the Industry Ministry took into account standard revenues from the sale of electricity at market prices, standard operating costs, and the standard value of the initial investment in the case of an “efficient and well-managed” company.

The ministry calculates that in some cases the new system will entail an increase in retributions for some wind power installations of 2.1 percent over current levels and a cut of 6.9 percent in others. In the case of some thermosolar plants, the changes will mean a fall in returns of 5.7 percent. Some photovoltaic installations will see a cut of 7.1 percent with others getting a 9-percent boost.