WIND POWER IN THE SPANISH ELECTRIC MARKET Alberto Cea March 2015 - PowerPoint PPT Presentation

WIND POWER IN THE SPANISH ELECTRIC MARKET Alberto Ceña March 2015

REGULATORY FRAMEWORKS

Immediate Obstacles  Until they are tackled, the numerous conditions affecting both the market and the internal regulation of renewables pose Obstacles to renewables development from the outset  Main conditions may be defined: Pay ment Technological Administrative Transmission development mechanisms procedures development • • • • Capital intensive Support policies required to Land, special levies and The proliferation of clean energy investments encourage investments biased treatment sources requires: • • • • High investment cost in Non-existence of investment Environmental processing: Tranmission network access. • developing technology and support deters development lack of experience Grid investments, to ensure • learning curve One stop shop – or as close proper functioning • to one as possible Dispatch priority Source: Banco Santander and own elaboration 3

Regulatory frameworks should cover the present costs of producing wind power LCOE ( € /MWh) IN DIFFERENT WIND FARMS CONDITIONS 120 90 Interestrate LCOE € /MWh 60 100% Equity 30 80% debt / 20% equity (r: 6,5%) 80% debt / 20% equity (r: 7,5%) Average pool price 0 1700 1900 2100 2300 2500 2700 2900 Nominal hours 1700 1900 2100 2300 2500 2700 2900 Nominal hours (CAPEX 1,2 MM € /MW) CAPEX (MM € /MW) 1485 1325 1200 1090 1000 935 869 (2.100 hours) Incremento del incentivo Fuente: AEE

Remuneration systems  Despite falling investment costs in different technologies (trending towards grid parity), there still seems to be a need for remuneration incentives to make investments possible  We can identify different incentive shemes around the world X  The renewables producer is entitled to sell all power generated to the grid either at an established fixed price or at the hourly pool price plus an “incentive” .  Characteristics: Feed - Price or incentive fixed by law in Tariff - The power produced has guaranteed priority grid access - Extensive duration of incentives (15-20 years)  The regulation obligates providers and producers to source a percentage of power to renewables  To comply with that obligation, each agent must deliver a Green Certificate for each MWh of renewable power supplied Green certificates  The Green Certificate is sold by the renewable power generator based on actual production either through a specially organised market or directly to the power provider/producer  Accordingly, the renewables producers’ income source is double : the market price + green certificate value  The regulation incentivises renewable energy deployment through auctions for different technologies inviting bids from interested investors Auctions  The acution establishes a maximum price, so fostering competitiveness among investor bidders  The utilities are obliged to buy all power produced throughout the duration of the PPAs allocated  The State promotes renewable energy deployment through direct or indirect fiscal incentives for the producer Incentivos  This system applies in USA, mainly through tax credits that can be sold to third parties (Production Tax Credits or PTC) Fiscales 5

Key parameters to define the tariff incentive Key parameters Main comments 1 • The size in MW should not be the main economic criteria • for selecting a WTG WTG costs. CAPEX • Known margins could affect to the final price of the WTG • BOP costs 2 • • Accurate evaluation of the It is important to have an accurate evaluation of the wind wind conditions and WTG conditions for all WTGS Generation • type. Important also an adequate selection of the model and • Curtailments risks type of the WTGs 3 • • Maintenance and As low as possible without affecting Wind Farm OPEX operation Reliability. • • Rents, taxes and social Impact of local and regional restrictions returns 4 • • Initial value It should give enough medium and long term vision Tariff • • Duration and up-dating It has to take into account the learning curve of the • Technical incentives technology. Reques- Proj. ted > IRR Profita- 4 • • bility Leverage level It should be based in the sector average, which is often not • Rate of interest easy to evaluate. Capital cost • Country risk (WACC) Source: AEE

Former regulatory framework based on premiums over the pool price ( € /MWh): - Regulated, fix feed in tariff: variable premium - Pool price + premium with a cap and floor remuneration

Main changes of the regulatory reform • It has been mainly driven by the tariff deficit (consumers do not pay all the electrical system costs). • No more premiums ( € /MWh) over the spot price, they have been changed for incentives to the investment ( € /MW). • To guarantee a project IRR is of 10 years bond + 300 bp. In 21014 was 7,398% • All the installations should be assimilated to standard projects. For wind it is related to the starting year of operation • The sole variable income is the spot market price, but with a cap and a floor too. • The incentives are reviewed each three years following the market prices and each six following the public bonds rate of interest

Intallations standard >5 MW. The incentive Rinv, is received to complete the 20 years of project economic life STARTI Rinv Operational NG Minimum CAPEX 2014- trehsold CODE OPERAT equivalent hours ( € /MW) 2016 Uf Anual 2014- ION 2014-2016 ( € /MW) 2016 YERA IT-00644 1994 1.025.000 IT-00645 1995 1.025.000 IT-00646 1996 1.025.000 IT-00647 1997 1.005.000 IT-00648 1998 979.000 IT-00649 1999 965.000 IT-00650 2000 960.000 IT-00651 2001 957.000 IT-00652 2002 957.000 IT-00653 2003 968.000 IT-00654 2004 1.075.000 8.294 1.048 629 IT-00655 2005 1.120.000 19.484 1.095 657 IT-00656 2006 1.175.000 41.342 1.101 661 IT-00657 2007 1.250.000 74.254 1.050 630 IT-00658 2008 1.367.000 107.220 1.050 630 IT-00659 2009 1.431.000 115.550 1.050 630 IT-00660 2010 1.528.000 124.803 1.050 630 IT-00661 2011 1.445.000 109.114 1.050 630 IT-00662 2012 1.398.000 104.995 1.050 630 IT-00663 2013 1.366.000 101.312 1.050 630 IT-00664 2014 1.366.000 101.157 1.050 630 IT-00665 2015 1.366.000 101.240 1.050 630 IT-00666 2016 1.366.000 101.381 1.050 630 9

Wind farms affected by the regulatory reform: all of them are merchan or quasi merchant plants Potencia eólica instalada Tasa de variación Año Total Anual (MW) ACUMULADA (MW) (%) 1989 0 0 0 1 1990 1991 1 1 12 13 1992 1993 0 14 1994 5 19 67 86 1995 1996 116 202 199 401 1997 1998 311 713 1999 720 1.433 101,04% 906 2.339 63,22% 2000 2001 1.156 3.495 49,43% 1.506 5.000 43,08% 2002 2003 1.160 6.160 23,20% 2004 2.280 8.440 37,00% 1.552 9.991 18,39% 2005 2006 1.578 11.569 15,79% 3.502 15.071 30,27% 2007 2008 1.613 16.684 10,70% 2009 2.455 19.139 14,71% 1.487 20.626 7,77% 2010 2011 1.048 21.674 5,08% 1.110 22.784 5,12% 2012 2013 175 22.959 0,77%

Change of remuneration 25 MW Wind farm miles € miles € 6.000 Retribución después de la reforma 6.000 Retribución después de la reforma Retribución antes de la reforma Retribución antes de la reforma 5.000 5.000 4.000 4.000 3.000 3.000 2.000 2.000 2004 2003 1.000 1.000 0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 miles € miles € 7.000 6.000 Retribución después de la reforma Retribución después de la reforma Retribución antes de la reforma Retribución antes de la reforma 6.000 5.000 5.000 4.000 4.000 2008 3.000 2012 3.000 2.000 2.000 1.000 1.000 0 0 11 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

TECHNICAL AND ECONOMIC MARKETS OPERATION

Electric market processes DAY-AHEAD MARKET (D) FORWARD Reference price INTRADAY REAL TIME CONTRACTS MARKETS (Price hedging mechanisms) TECHNICAL CONSTRAINTS 12:00 Day-Ahead Hourly Final Result Schedule D-1 D

Different sessions of the day ahead and intraday markets CLOSING TIME 12 DAY AHEAD MARKET D 27 hours 24 hours 20 hours INTRA DAY MARKETS 17 hours 13 hours 9 hours .. DAY AHEAD MARKET D+1 .. 27 horas 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 00

Wholesale electric market managed by the XP (OMIE ) and Ancillary services programmes managed by the TSO (REE) Market Operator System Operator Previous information DM Daily Market Reception of nominations Resolution of technical constraints Secondary Regulation Intra-day Market: Sessions 1 to 6 Resolution of technical constraints Deviation management Tertiary Regulation Resolution of technical constraints 15

Production Offers integration All the offers are agregated by technology First block: Third block: Second block: Energy 100,0 MWh, Energy 130,0 MWh, Energy 110,0 MWh, at 10,00 Euro/MWh at 80,00 Euro/MWh at 30,00 Euro/MWh Undispatchable plants