According to International Energy Agency (IEA) website publication on Renewables 2022 Analysis and forecast to 2027 report:
Renewable power capacity almost doubles thanks to favourable market conditions and reforms to address permitting and grid challenges
Spain’s installed renewable electricity capacity is expected to almost double by 2027 as competitive auctions, corporate PPAs and merchant projects add 58 GW of solar PV, onshore wind and pumped-storage hydro. This year’s forecast has been revised 63% upwards to reflect a more optimistic outlook for solar PV for two reasons.
The first is an increasingly attractive business case for both unsubsidised utilityscale solar PV and self-consumption in distributed PV. In both segments, growth was stronger than expected in 2021, resulting in total PV additions of 4.7 GW, the highest on record in Spain. The second reason is the passing of regulatory reforms to accelerate renewable capacity growth in response to the war in Ukraine. The reforms streamline permitting for solar PV and wind plants, increase grid capacity for new renewable energy projects, and provide clarity over clawback policies for windfall profits.
In March 2022, Spain passed Royal Decree 06/2022 – a series of reforms to address permitting challenges and grid congestion for renewable energy projects. Among their various measures, these reforms underpin a more optimistic forecast by:
- Introducing simplified environmental approvals for solar PV projects of less than 150 MW and wind projects below 75 MW, and by shortening the regulatory response deadline from six to two months.
- Requiring distribution grid operators to earmark 10% of their investment budget for upgrades to facilitate connection for new small-scale renewable power plants.
- Mandating that 10% of transmission capacity be released specifically for large self-consumption projects.
- Announcing an end date for windfall-profit caps for merchant projects and clarifying that projects with fixed-price PPAs would be subject to the clawback only if the contract price is above USD 67/MWh.
Projects outside of the auction scheme account for 50% of the main-case forecast for utility-scale growth. The regulatory reforms clarifying the clawback mechanism, shortening permitting times and increasing grid capacity are expected to address challenges that limited the pace of unsubsidised project expansion in last year’s forecast. Accordingly, the utility-scale solar PV forecast has been revised upwards by 60%.
While the reforms are also expected to facilitate onshore wind expansion, their impact is limited because the decommissioning of older plants offsets upwards revisions resulting from the reforms. Not all projects coming to the end of their feed-in-tariff eligibility are expected to gain sufficient revenue in the spot market or from corporate off-takers to maintain operations or repower.
For distributed PV applications, the forecast has been revised upwards, with 88% more expansion in 2021 than expected as self-consumption is increasingly economically attractive and grid reforms will facilitate connection. The Spanish government’s 2019 decisions to lift the tax on self-consumption, allow collective consumption and remunerate excess generation have improved the business case for commercial and residential applications, causing capacity additions to increase from 2020 to 2021. The main case expects the prospect of higher retail electricity tariffs to make self-consumption even more financially attractive, while recent regulatory reforms reduce grid congestion and shorten connection queues.
Accelerated-case forecasting indicates that growth could be almost 40% higher than in the main case under two conditions. The first is higher growth from unsubsidised utility-scale projects and distributed PV, encouraged by lower investment costs and sustained or higher electricity prices. The second is the awarding of more capacity through competitive auctions. For solar PV and onshore wind, greater volumes would have to be allocated under the tendering scheme. Current auction volumes do not provide enough annual deployment to meet the 2030 targets, implying that the residual would come from projects contracted outside of the auction scheme.
Higher auction volumes would boost growth and increase the probability of meeting long-term targets, particularly for onshore wind, for which unsubsidised markets are not as attractive as for solar PV. For CSP, raising bidding thresholds could also result in stronger growth. The first auction for 200 MW of CSP in October 2022 awarded no capacity because the bids exceeded the ceiling price of USD 110/MWh.
