The introduction of two Royal Decrees, delays in publication of project registries and a lack of communication between the Spanish government and industry players has left Spain's PV and CSP sectors plagued with regulatory uncertainty.
Spain's photovoltaic sector is still reeling from a royal decree that imposed draconian restrictions on the sector in September last year. The objective of the Royal Decree, (RD) 1578/2008, was to regulate the project application process in an attempt to slow down what the Spanish Government believed was un-sustainable growth in the PV market.
However, the roll out of the decree was poorly executed and resulting delays in publishing the registry for the preliminary assignment of remuneration brought the booming industry to a grinding halt.
Exacerbated by the global recession and the credit crunch, RD 1578/2008 was almost too much for Spain's PV sector. Production plants closed, funding dried up and PV component prices plummeted. Around 25,000 workers (representing almost a third of permanent and 90% of temporary employment in Spain's PV sector) lost their jobs as household names in the PV supply chain, most notably Isofotón, were forced into lay-offs.
It is therefore unsurprising that suppliers recoiled when the Spanish government imposed similar restrictions on the CSP sector back in April this year. The government's Royal Decree 6/2009 included an annual 500-MW cap for solar thermal electric installed capacity, the need to present a guarantee deposit of €100 per kW, and a registry for the preliminary assignment of remuneration.
The CSP sector is in limbo and component suppliers are beginning to feel the squeeze, according to Carlos Muñoz from the Solar Thermal Electric Division of the Spanish Renewable Energy Producers Association (APPA). Although most interested parties do not consider that RD 6/2009 will be as damaging to CSP suppliers as RD 1578/2008 was to the PV sector, the current hiatus is already having an impact.
"The initial impact [of the delay] has been negative. The Ministry announced that it was going to publish the registry during the summer, but we are now in October and still no news. Developers are encountering real problems with bank financing," says Muñoz.
Although CSP plants continue to be brought online in Spain (the most recent being Abengoa Solar's PS20 plant in Seville), many developers and investors have opted to hold back until the current fog of uncertainty clears.
"The truth is that the commitment of the Ministry [of Industry] to ensuring the sector does not grind to a halt as a result of the RD is strengthening, but too slowly to stop the freezing of funds earmarked for existing projects. This is causing serious imbalances in the sector and difficulties both for project developers and component suppliers upstream,"; explains Valeriano Ruiz, President of Spain's CSP industry association Protermosolar.
Reinout Das, Business Development Director of CSP developer Sunstroom, sees practical problems for clients, investors and suppliers who want to start work but cannot. "We have spent six months telling investors 'wait a little longer, perhaps next week'. The uncertainty is tremendous after doing so much groundwork."
Jordi Vilanueva of Rioglass Solar, Spain's leading parabolic mirror manufacturer, notes that prices are beginning to fall. "The truth is that we are starting to notice the effects. Some suppliers have considerable stockpiles and are resorting to price cuts to sell off stocks," he says.
However, some believe that future supply bottlenecks will allow CSP component prices to rebound. "Once the registry is published, everyone will be placing orders at the same time and prices could go up," explains Reinout Das.
Nevertheless, Carlos Segura of clean energy consultancy firm Esclareon considers that any pressure on supply when the sector starts moving again will be offset by recent investments made by component suppliers to boost production capacity. Schott Solar, for example, has opened a new major plant for manufacturing receivers in Aznalcóllar (Seville) with an output of 200 MW per annum.
David Diaz de Cerio, Director of Business Growth at Sunstroom, concurs that many suppliers are currently investing in production capacity. "While they are not yet bringing this [capacity] on line, it does mean that there will be greater competition in the sector in the future, which could lead to lower prices."
Segura notes that suppliers of components used in other industries, such as generators and tubing, also have spare capacity as orders from clients outside the CSP sector have fallen due to the global recession. Consequently, supply restrictions should be limited and price hikes unlikely.
Other factors are likely to swing the balance toward recurrent price cuts. A further Royal Decree setting out new tariffs for the CSP sector will undoubtedly have a major impact on supply prices moving forward. Francesco d'Avack of New Energy Finance says: "It seems clear…that tariffs need to be adjusted downwards. I do not see how developers can expect a €288/MWh ($400/MWh) tariff in Spain when Acciona can sign a ower purchase agreement in California for $179/MWh."
D'Avack is confident that even if a lower feed-in tariff (FiT) is introduced, CSP component suppliers can ride out this lull and still remain competitive. "If the tariff is lower next year, components will have to get cheaper. I think suppliers can do this with without any problem," he says.
Meanwhile, APPA's Carlos Muñoz – a self-confessed eternal optimist – is also convinced that "we still have time to avoid committing the same error made in the PV sector," adding, "I would like to think that after a period of reflexion, the CSP sector will rebound with more vigour than before," despite an expected drop in tariff.
What remains clear is that prospects for CSP suppliers should quickly improve once current doubts surrounding RD 6/2009 are assuaged, because significant orders will start flowing in. With 100 projects totalling 4,300 MW of capacity currently presented for registration; sufficient technological and production capacity to install up to 8,000 MW by 2015; and Red Eléctrica Española (the Spanish grid operator) laying down enough infrastructure to support 9,500 MW of new capacity between 2016 and 2020, CSP component suppliers will undoubtedly be able to consolidate their foothold in Spain and ramp up production, leading to further price reductions.
At the time of writing this article, the Spanish Senate approved a new law that repeals Article 4 of RD/2006. This would clear the way for developers to move forward with their projects without having to wait for the publication of the registry.
The repeal of Article 4, which has yet to be approved by Spanish Congress, is being enacted under the auspices of a new law approved late Wednesday, which regulates listed real estate investment companies.
If passed by Spanish congress, the repeal of Article 4 will herald the end of the system of control established by the Ministry of Industry to monitor future CSP projects, cap new production capacity, and assign tariffs. The CSP sector will return to regulation under RD 661/2007.
In September, the Ministry of Industry approved the first 36 requests for inscription on this registry, which included 50 MW of CSP capacity.
Both the Spanish administration and the Ministry of Industry have declined to comment until the repeal has been approved in congress.