Mon.
Oct 18
2021
wind farm
Image: Anna Jiménez Calaf via Unsplash

Spain’s move to charge wind farms to offset spiking wholesale electricity prices will undermine investment in renewables, according to Wind Europe, an industry lobby group.  

Growing energy prices have caused problems across EU energy markets, and Spain has not been an exception. 

The Spanish government believes that high gas prices have driven up electricity prices, while wind farms don’t have to buy gas thanks to “windfall profits.”

The decision contradicts a recent statement by the International Energy Agency that said clean energy policies are not to blame for current spikes in gas and electricity prices. It also cautioned that soaring prices should not derail Europe’s green transition.

The current policy is based on the logic that wind farms across the country sell electricity at so-called “spot” prices across the electricity market. In reality, this is not exactly the case, according to Wind Europe.

Wind farms sell energy at pre-agreed prices and in fixed-term contracts. This allows them to hedge against low and high prices and forego high spot prices.

The decision of the Spanish government imposes charges of EUR 40-80 per MWh. In effect, a wind farm with fixed long-term revenues of EUR 35 per MWh is expected to lose money on every MWh it would produce.

The situation could ultimately result in many wind farms choosing to shut down instead of surviving by managing losses.

As wind farms in Spain may now face declining revenues and greater uncertainty, they may ultimately lose appeal among investors, according to the statement.

The European Green Deal requires 30 GW of new wind farms to be built every year until 2030. Currently, EU members have been producing 15 GW on average. Decreasing investments into the Spanish renewable sector could affect the rest of the bloc.

Another problem with Spain’s decision is that it helps the fossil fuels industry at the expense of renewables. The decision incentivizes fossil generation, which contradicts the goals of the Green Deal.

The Spanish government denies that the measure is inconsistent with EU law and will affect market electricity prices. However, it is unclear how the decision would not alter market behaviour as it will likely push power producers to bid into the market at prices unrelated to costs.  

The wind lobby group makes good points with regards to investment security and clean energy policy goals. Denied access higher prices will put wallets back in their pockets. Fewer projects will happen.

On the other other hand, the industry has traditionally leaned heavily on government support or subsidy. That means regulatory risk is an accepted part of the investment environment from the outset. So there’s some element of crocodile tears even if they have reason to complain.

In general, there is no global shortage of natural gas (or wind and sun, for that matter). The mismatch of supply and demand comes during pandemic recovery. It will balance out. The link between renewables and natural gas, however, will only become more relevant as renewables grow while natural gas continues to set pricing. 

By Dimitri Frolowsckii

Dimitri Frolowsckii is a political analyst and consultant.

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