Navigant Research Blog

DER Opportunities in Spain

— March 15, 2018

Despite the uncertainty created by the Sun Tax in Spain, the industry is growing again. According to the Spanish PV Union (UNEF), in 2017, the annual installed capacity increased by 145% thanks to new self-consumption facilities, growing from 55 MW in 2016 to 135 MW in 2017. This development has been driven by the high degree of competitiveness achieved by PV, the costs of which have reduced significantly in recent years.

Off-Grid DER Is Booming

Most of the growth in 2017 came from agricultural use and rural electrification. In most of these installations, distributed energy resources (DER) has an advantage as it competes with either high fuel costs in applications like water pumping that used diesel generators or, in the case of new rural facilities, with expensive grid expansion costs.

In this sector, the challenge now is to not to reduce the price, but to convince potential customers of the value DER installations can bring. For example, farming operations can reduce diesel consumption to power irrigation pumps by around 70% with the addition of a solar plus storage system, this type of installations have a payback of just a couple of years.

Commercial and Industrial Is Becoming Competitive

The introduction of variable demand charge on auto-consumption (the so-called Sun Tax) in Spain created the impression that distributed solar was doomed to fail as with this charge, installation would be too costly to operate. This impression has lingered although, with the lower cost of solar installations, a significant number of installations could be paid back in 5-7 years despite the variable demand charge payment. The local systems integrator Opengy, reported that 2017 was its best year since 2010, with around 18 MW in its project pipeline (compared to less than 10 MW in 2016 and 2015).

Residential Gaining Momentum

The residential market is also gaining momentum, although it is yet get significant numbers of installation in place. In the latest news from this segment, the challenger local energy supplier, Viesgo, announced in February 2018 a partnership with (the also challenger) Bigbank, to finance Viesgo’s customers that want to buy a DER system (that can include solar, storage, and even EVs). In this agreement, Bigbank offers a 6.95% credit to Viesgo customers, while Viesgo is in charge of installing and servicing the system and collect customer payments. This follows the news of sonnen and SOLARWATT, the German battery and shared energy platform providers, which both entered the market in the last 6 months.

In the Global DER Deployment Forecast Database report, Navigant Research analyses the global market for DER technologies and assesses key market and technology trends. Driven by these trends, Navigant Research estimates that Europe installed 29.1 GW of new DER capacity in 2017, generating $25.5 billion in revenue. Spain missed the mark of what DER can bring to a country, but the future looks sunnier.

While Spain is far from the leading DER market and local legislation is not especially welcoming to DER, the demand charge could be improved and the lack of a flexibility market limits the revenue streams DER could tap into. The country is finally waking up from its distributed generation nap and a combination of a better economy and better system economics are behind it. The utility-scale record low bids in last years’ tenders put renewables back in the front pages, this time with a positive note and word-of-mouth marketing about savings at the distributed level are creating a buzz. Once these trends consolidate, Spain could become the first European country to have a successful DER industry that does not rely on any type of incentive (direct or indirect) to thrive.

 

Is Distributed Generation in Spain Waking Up from Its Long Nap?

— March 8, 2018

For a long time, Spain’s intent to launch a clean energy industry was resolute despite the mishaps that occurred after the financial crisis of 2008 and the effect of European fiscal deficits in 2009/2010. In fact, my career in the sector began thanks to a job posting that required engineering and Spanish knowledge (to cover the growing Spanish renewables market).

With the financial crisis, Spain’s renewable energy ambitions not only collapsed, but the industry was thrown into the fire as part of the political and economic post-crisis fallout. The country stopped any new installations and slashed already signed feed-in tariffs (FITs) while the public opinion also turned against the industry.

Blocking the Sun

On the distributed side, the country passed from a FIT to a de facto veto on installations, then to a model that taxes auto-consumption on installations that maintain a connection to the grid, formally known as the Royal Decree on Auto Consumption, colloquially known as the Sun Tax.

The Sun Tax has a fixed component that, in reality, is a demand charge. Each year, 75% of it is paid per kilowatt of installed capacity, and the remaining 25% is a variable component that is paid for each kilowatt-hour consumed by the owner (coming from the grid or owner’s system). The fees are set by the government each year and vary depending on location and the customer’s type of grid connection.

The Sun Tax Does Not Always Shine

The Sun Tax came into effect in October 2015, just as Spain prepared for its December 2015 general election. With the election in sight, the government moved into other matters and did not pass the necessary regulation to make the Sun Tax applicable in practice.

When the government failed to win a majority in the parliament, any possibility of passing the regulation collapsed. It took a second election and almost 11 months to form a new working government. While the government is still led by the Partido Popular—proponents of the Sun Tax—it does not hold a majority; therefore, other parties can block any attempt to pass the tax’s secondary regulation.

This has put the Sun Tax and the future of distributed energy resources (DER) in limbo. Any financial analysis of distributed generation in Spain that considers the tax would reduce the competitiveness of DER solutions against grid electricity, but there is no process to pay this charge to the government or utility. This put the industry on hold, as potential customers could not estimate if and when an installation would be paid back by the savings. But this is starting to change. Even in the worst case scenario, DER installations are becoming economically attractive. DER opportunities in Spain will be presented in the second part of this blog.

 

Changing Building Codes Are the Latest Proof of the Distributed Energy Revolution

— March 8, 2018

The distributed energy resources (DER) revolution is underway, and there are signs all around us. Readers of this blog have seen discussion of distributed PV, energy storage, microgrids, and similar technologies grabbing ever wider bandwidth in trade journals, social media, and popular news outlets.

Building codes just may be the latest proof of the dramatic shift to distributed energy. The 2017 version of the National Electrical Code (NFPA 70), the most widely adopted electrical construction standard on the planet, has a total of five new articles (or sections)—and four of those five are directly related to DER, as shown in the table below. Since the code’s key purpose is for electrical safety and fire protection, the addition of these articles reflects the need for setting safety standards among these fast-deploying technologies.

The addition of four articles is significant. Over its 120-year history, the code had accumulated eight articles related to DER (including generators, fuel cell systems, EVs, and the like), so this adds a notable 50% increase. Watch for changes to existing articles and more hybridized, interactive DER, and standard DER-related articles in subsequent versions.

New Articles Added to the National Electrical Code 2017

(Source: National Electrical Code)

Going beyond Code Requirements

Beyond just making safe and code-compliant equipment, DER vendors need to proactively address the concerns of building officials, fire marshals, and other authorities charged with protecting public safety. Since many codes are updated on a 3-year cycle—an eternity in the current wave of innovation—some products are invented and may have multiple generations before technical committees can officially weigh in. This author has heard an initially skeptical building official consider approving a fuel cell on a parking structure express concerns with “the thermal power plant on the roof” (the project was approved). Lithium ion battery storage installers (and lead-acid before them) have spent years educating fire officials on safety measures and operating procedures for their equipment. Vendors of newer technologies often learn from those that went before. But in most cases a proactive, trailblazer approach pays dividends.

One example of a DER technology overcoming safety concerns is the case of distributed PV in California. While not strictly building code related, California’s Rule 21 interconnection requirements were recently significantly updated to reflect growing trust of grid-tied inverters like those used in PV systems. Whereas inverters were formerly required to immediately shut off at the slightest sign of grid trouble or outage (for safety reasons), new smart inverters are allowed and able to stay operational under a much wider set of circumstances. This was as much a function of increased trust of the technology as it was a need to not have megawatts worth of generation going offline after each slight blip in frequency or voltage.

Industry Recommendations

Codes and similar regulations are important—they can encourage or limit technology deployment, effect installation costs, and even determine the number of hours a system can provide usable power (e.g., California’s Rule 21 for PV). Thus, it pays for vendors to take an active approach in educating city officials and first responders, and to be active in code development cycles. The relative infancy of the DER revolution means more growing pains likely lay ahead. Since DER are not yet truly ubiquitous, a proactive approach by vendors is a wise investment.

 

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