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Spain eyes turnaround in renewable energy policy

Date: 26-May-03
Country: SPAIN

Spain, with 4,830 megawatts of wind energy capacity installed, overtook the United States last year to become the second biggest wind energy producer after Germany, helped by government incentives.

Currently the government sets a premium which renewable energy customers must pay on top of the price, aimed at compensating firms for the risks they run in an industry that demands high investment and promises limited profitability.

The government sets that premium's size according to moves in electricity prices. But a new proposal from the energy regulator - which the government is set to adopt - says other factors should be taken into account, such as the cost of investment; operation and maintenance; and the generator's potential.

That system would allow firms to know what income they can expect, rather than relying on volatile electricity prices.

"We're trying to bring security and stability to the system. It is not a good system that tariffs can rise or fall in December each year without knowing why they will rise or fall," National Energy Commission chief Pedro Merono told reporters.

Secretary of State for Energy Jose Folgado said the new system, which the government plans to adopt, would be ready before September.

But sector sources said they thought the new system would push down premiums.

The wind energy industry, which has grown 700 percent in capacity terms over the last four years, is already facing a profitability squeeze. In order to expand, firms will have to build wind farms in less windy areas as the prime sites have already been snapped up.

Another pressure comes from the fact the sector is 80 percent financed by bank loans. Power utilities Endesa (ELE.MC) and Union Fenosa (UNF.MC) are seeking financial partners for their wind subsidiaries to share the investment burden.

In 2002 wind energy firms invested 1.5 billion euros - 1.2 billion from credit lines - and produced 9,120 gigawatt hours, compared with 6,600 the year before.

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