Spain to host new renewable energy auctions: Restart or hurdles?

In early 2016, the Spanish government held an energy auction for 500 MW of wind power and 200 MW of biomass which was oversubscribed by more than five times and drew criticism for lacking a prequalification requirement to compete. Back in autumn last year, the Spanish government announced then plans to hold a new renewable energy project auction, eagerly awaited from the national industry and international players, with high expectations that the auction design would be simplified and/or consider some characteristics of the Spanish market reality (e.g. plant size).
On December 29, 2016, the Ministry of Energy, Tourism and Digital Agenda has finally sent the regulatory proposal for the tender, comprising a royal decree and the corresponding ministerial order, to Spain's energy watchdog, the National Authority for Markets and Competition (CNMC), where it is currently under review and until January 20, 2017 open to public consultation. The regulation’s main goal is to define the policy through which is projected to introduce a new auction system for renewable energy projects.

The intended 3 GW auction is mainly motivated by the requirement to guarantee Spain meeting its binding European Union target for 2020. The 2020 target demands 20 per cent of the gross final energy consumption to come from renewable sources, and up to now, Spain is still on track to hit its target by 2020. Citing figures from Eurostat, the country beat expectations earlier in 2014 when it achieved a green mix of 17.3 per cent, compared to the 12.1 per cent originally forecasted. Thus, the announcement of the new auction may be considered to be a measure of the Spanish government to demonstrate its intention and efforts to meet also its 2020 targets. However, the message has likewise raised hope among industry players as it could reactivate the national market that suffered a severe slow-down after the retroactive measure taken in 2013.

Although the royal decree and ministerial order in their current draft version do not disclose yet further official details neither all details about bidding rules, according to recent industry sources it can be expected that the auction will be held in two rounds, with the aim of allocating 1,500 MW of renewable energy projects in each. Same sources state that it may be expected that the first round is announced during the first quarter 2017 and winners should be named before March 31, 2017. The second round would be subsequently hold in the course of the second quarter 2017. Nevertheless, industry rumours fear that the 3 GW auction could end in a single bidding round in case enough adequate projects were presented already during the first round and the government would correspondingly amplify the allocation capacity to the maximum.
In any case, this tough timeline, which somehow requires projects in an already advanced development stage in order to fulfil milestones, is mainly conditioned to the fact that winning projects would be required to be operational by December 31, 2019, in order to contribute to the fulfilment of the EU 2020 target.

Despite the criticism caused by last year’s auction, the new announcement of the upcoming tender does not differ a lot from the previous one, even though the government has opened this auction up to all technologies. Important to highlight in this context that the new regulation will be introduced and function under the umbrella of royal decree RD 413/2014, the policy which currently regulates the Spanish renewables’ market and establishes that the special remuneration to new renewable projects will be allocated through future public tenders.
That said, a couple of relevant features that may be considered for this auction round, expected to be hold during the next couple of weeks, can be summarized as follows:

• Bidders offer a discount on the standard value of the initial investment of the reference standard plant (defined by the government). The bidding will be performed as sealed-bid, price-only auction, following a uniform pricing rule format, i.e. all the winners receive the discount of the last bid being accepted, which will set such discount.
• Allocated capacity does not have to be associated from the very beginning to any specific project, but oblige bidding parties to register any projects, according to the awarded capacity and technology, within six months, in accordance to the standard regulatory procedure. Subsequently, they have 12 months in order to finalize the official approval process.
• Also it is relevant to know that bidders are required to present a financial guarantee, established at 60 Euro per kW. This guarantee would be enforced in case the 12-months-deadline, for managing all operational and administrative approvals, would not be met.

Summing up, in contrast to recent auctions observed in several geographies worldwide, The Spanish auction system distinguishes through the difficulty of the bid preparation process. Nevertheless, important to highlight, aforementioned details do not have to be translated in ruling policy, but are only based on current draft versions of the suggested regulation and corresponding industry discussions and should be considered solely as an approximate guideline for further analysis of the bidding process.

Last but not least, relevant to note that the technologically neutral 3 GW auction has been designed for projects on the Spanish mainland only. However, as per a recent statement of the Ministry of Energy, Tourism and Digital Agenda, there will be additionally hold a renewable energy auction for the Spanish islands in the first quarter of 2017. Whereas such an announcement for the Canary Island seems already clear, the implementation of a second one for the Balearic Islands remains somewhat controversial.

Vector Cuatro entered the renewable energy market about ten years ago, supporting industry players through its different business lines along the entire value chain of green power plants. The team is composed of highly qualified professionals with various engineering and financial backgrounds and a proven experience in the renewable energy industry, who always aim to respond best the specific needs of each of their clients, in accordance to local characteristics. In the Spanish renewables market, Vector Cuatro is one of the most recognized and experienced independent service firms, with a strong network in the industry. Today the company has over 250 MWp of solar PV and wind power plants under management. In addition, Vector Cuatro counts on a considerable track record equivalent to around 2 GW as Technical and Financial advisor  providing a great variety of services that include owner’s engineering services, on-site audits, technical due diligences, support in financing or refinancing processes or elaboration of financial models, among others.
Concerning the new evolvements within the renewable energy market in Spain, Vector Cuatro’s professional team is available to render any kind of support to interested market players, in terms of legal, technical and financial assessment, for any new solar PV or wind power plants during the bidding process as well as their subsequent design and development, construction, selling, financing and operation phases. That may include support in the project sourcing, the elaboration of financial models for the auction, the preparation of the basic and detailed engineering or the support during the financing and subsequent construction and operational phases.