Renewables lose millions from an electricity market price miscalculation

Two of Spain’s business associations of reference for renewable energy, AEE and APPA, have recently reported multi-million euro losses facing the sector because the Ministry has miscalculated the electricity market price. The effect of these losses will be seen from now on with the publication of the new economic parameters confirming that the calculation mistakes made for the first half-period have not been resolved.

A press release from APPA in early December reported that between 2014 and 2016 (first half-period) renewables lost €930m in expected remuneration: €574m directly corresponding to unrecognised payments and €356m to be reimbursed throughout the service life of the installations. It also reported that having made the same mistake, losses for the 2017-2019 period could rise to €664m, resulting in a cumulative loss of €1.238bn for the 2014-2019 period.

The AEE calculations indicate that wind power losses in the first half-period would have reached €630m, from which the sector will receive €212m in compensation, barely 36% of the amount that should have been earned and which will moreover be distributed over the service life of the installations, representing some €22m per year.

As such the worst fears of the sector have been confirmed. Despite both business associations understanding that the new Ministry calculation should take the prices handled by the future markets as a basis, the government has made the same mistake again. The ministerial order amending the remuneration parameters sent to the CNMC (National Commission on Financial Markets and Competition) has again used 52 €/MWh as a reference price – the same figure as the previous half-period – rather than 41.32 € which is the futures markets benchmark price. For this reason, over the next three years, wind power will accrue around €400m (38%) less than it should.

The end of the first three-year half-period marks the first milestone since the Energy Reform came into effect. This has demonstrated both the instability of the system and its arbitrary nature, as companies are not achieving the reasonable level of profitability, and as such less income, established by a law that is mired in uncertainty and a prevailing lack of investor confidence in the sector over recent years.