Renewable energy capital is once again looking to Spain for investments in photovoltaic power. Unlike 10 years ago, its revenue will depend primarily on the market rather than on decisions made by the Ministry of Energy.
Unfortunately, the People's Party undermined the country's legal framework, and this scared off investors. In fact, it brought the country, the sunniest in Europe, to a standstill.
Fortunately, the improved market and the European political consensus reached after the Paris Agreement are attracting investment back to Spain towards photovoltaics , whose penetration in the energy mix barely covers 3% of current demand.
With an estimated average return of between 4% and 7% , the interest of funds, banks, industrial developers and collateral actors is beginning to generate a new boom in solar energy.
Next we are going to see some of the keys:
Cost reduction of solar photovoltaic
This is the key factor behind the significant boost this technology is experiencing worldwide. Currently, photovoltaic panels are ten times cheaper than they were a decade ago.
This means that solar photovoltaic energy is now competitive without the need for subsidies as before. In fact, the latest study by the International Renewable Energy Agency ( IRENA ) shows that electricity produced with solar photovoltaics has become the most cost-effective of all renewable technologies.
The sharp drop in prices is due to manufacturing in China, where virtually 100% of the boards are produced. Some consultants specializing in the sector warn that it's important to keep in mind that the Chinese could start raising prices, given their lack of significant global competition.
Lots of sun available
Another decisive factor when choosing Spain is the potential of this territory, given its abundant solar resources . In fact, it is the country in Europe with the highest solar radiation. The country leverages this to develop its tourism industry. Unfortunately, its energy capacity is underutilized. Looking at the data, Spain had 4.675 MW of installed photovoltaic capacity at the end of 2017, while Germany, with a much scarcer solar resource and a similar land area, already has more than 40.000 MW in operation.
The future decarbonization
Another important factor in opting for renewables is the high level of commitment that the European Union has acquired in the fight against climate change and decarbonization.
This agreement mandates the elimination of emissions by 2050, which requires a significant increase in electricity production through renewable energy sources. Therefore, member countries are launching auctions to install these technologies, enabling them to meet their quotas. To comply with the Paris Agreement signed in 2015, experts point to the electrification of the economy.
This is leading many to believe that electricity demand will grow significantly in the coming years. Evidence of this is the strong commitment many car manufacturers are making to electric vehicles.
Reduce paperwork and less regulatory uncertainty
Photovoltaic energy demonstrated in the latest renewable energy auction that it can compete without public subsidies—that is, at market prices. Fortunately for the state coffers, dependence on government funding is decreasing. Reducing red tape when installing new systems and adhering to the regulatory framework will greatly help attract new investment.
PPA (Power Purchase Agreement)
A new product is a PPA (Power Purchase Agreement) . This is a long-term agreement between a generator that sells energy at a set price and a consumer who buys it. This product is proving crucial, as banks and funds are providing capital without government assistance, using this PPA as collateral. This is enabling development independently of recent auctions and any other form of aid.
As José Donoso, CEO of the photovoltaic association UNEF, explains, "There are between 1.000 MW and 2.000 MW outside the 4.000 MW awarded in the auction that are currently being developed with PPAs or directly at market price." There are even investors willing to assume the risk of volatility associated with revenue coming from the wholesale market, which experiences significant fluctuations.
Another important point is the renewed interest of banks in financing these projects. However, market risk and past negative experiences are making them more cautious when injecting funds. Nevertheless, industry sources explain that international banks are becoming more active and will also compete with Spanish banks.
The electricity generation sector, once dominated by large utilities, is becoming increasingly fragmented. The oligopoly of production is breaking down. In fact, foreign pension funds (Allianz, Hontario public institutions), private equity firms (Cerberus, KKR, Oaktree), and infrastructure funds (GIP, Brookfield) are making a decisive entry into the sector.
