This is an extract from Solar Power Europe’s recent report “Global Market Outlook For Solar Power 2023 – 2027”. This report extract focuses on solar power developments and outlook for Spain.
Solar power is entering a maturity phase in Spain: with around 8.4 GW of annual installed capacity in 2022, the country experienced its best year ever for solar PV deployment, becoming the largest European PV market in 2022. Since 2020, over 18 GW has been installed, leading to a 156% increase of the solar PV operating fleet in the last 3 years. Spain’s leadership in the renewable PPA market, the development of PV capacity assigned in previous renewable auctions, the geostrategic challenge driven by the Russian invasion of Ukraine related to security of supply, and the growth of rooftop PV, are the main factors contributing to the accelerating solar market. However, there is no room for complacency: both policymakers and industry will have to actively protect the country’s GW-size industry.
Drivers of solar growth
Following a process that lasted several years, the Spanish Parliament approved the Climate Change Act in May 2021, fixing a dual target for renewables in 2030: a 42% share in final energy consumption, and a 74% share in electricity generation. The law also includes a clause to revise (only upwards) the targets in 2023. In order to meet these targets, the Spanish National Climate and Energy Plan (NECP) currently foresees a solar PV capacity as high as 39.2 GW in 2030. In 2023, this plan is being revised upwards, and new objectives for solar PV capacity may increase, in a range from 50 to 65 GW.
The main driver for solar growth in Spain is its competitiveness, in both ground-mounted plants and self-consumption. For ground-mounted plants, the economic competitiveness of the technology (favoured by economies of scale), the terrain, and solar resource availability of over 1,900-2,000 kWh/kWp per year, as well as the regulatory stability of recent years, have fostered a supportive ecosystem which has attracted the interest of different actors. These include national utilities, European utilities, companies from the oil & gas sector, independent power producers (IPPs), solar developers, investment funds, etc.
As a result of this ecosystem, a considerable number of developers and IPPs have deployed GW-size portfolios which have been sold to newcomers also pursuing brownfield development. Significant activity in mergers and acquisitions (M&A) is making Spain one of the largest sectors in Europe for transactions in renewables. In addition to M&A operations, several companies are considering going public, highlighting the strong potential of Spanish solar companies.
PPAs have been a main factor in this recent development. All large-scale solar capacity commissioned during 2020 (3.5 GW), 2021 (4.3 GW) and 2022 (5.3 GW), has been developed without any type of public aid or regulatory scheme, and all through PPAs or merchant projects. The stability offered by Power Purchase Agreements is now more valuable than ever.
The rooftop PV market is developing at an accelerated pace. After the removal of the ‘Sun Tax’ on self- consumption in 2018, the current framework was only achieved in 2020, with the introduction of automatic surplus remuneration, plus collective and through-the- network facilities. Both companies and the end-consumer market have been gradually gaining pace since then.
Rooftop PV had already been increasing strongly in previous years (+551 MW in 2019, +715 MW in 2020). However, a substantial growth level was reached in 2021, when this market segment grew 102% year-on- year exceeding the GW-level with 1,444 MW of annual installed capacity. This trend continued in 2022, with another 108% increase year-on-year, reaching 3,008 MW. This spectacular growth was especially strong in the industrial segment, which accounted for 47% of the total. The high electricity prices of 2022, and the tax incentives of many municipalities, encouraged many households and businesses across the country to become self-consumers.
On the policy side, the main driver for the development of the sector is the Roadmap of Self- Consumption, approved in December 2021. The document includes measures to foster this segment, and estimates the potential of self-consumption in 2030 as between 9 and 14 GW. Furthermore, in 2022, several policies have been developed to improve self- consumption deployment; in March 2022, 10% of grid access has been reserved for self-consumption, plus Royal Decree 18/2022 has improved the permitting process for small self-consumption installations.
Under Spain’s National Recovery and Resilience Plan, rooftop PV is considered a priority area in facilitating the energy transition. In fact, in May 2022, the government has amended Royal Decree 477/2021, doubling the 450 million EUR allocated to the sector in 2021.
As mentioned, the main driving force for rooftop PV is the high wholesale electricity prices, serving as a wake-up call for industrial and commercial players, as well as for households. All these segments are looking at solar as a means to decrease their energy bills through the use of affordable and green self-consumed electricity.
Additionally, in response to Russia’s invasion of Ukraine, the Spanish government introduced a set of measures in April 2022 to decrease fossil fuel dependencies, curb energy prices, and speed up the deployment of renewables. The package of measures includes, among others, a regulatory framework for floating PV, accelerated procedures for PV parks below 150 MW, strengthened distribution grid capacity to absorb 7 GW of self-consumption systems, and regulations for the pipelines of renewable gases, including renewable hydrogen. In terms of outlook, expectations are also very positive.
In the ground-mounted segment, as previously stated, the newly installed capacity reached 5.4 GW in 2022, in line with our previous forecasts, and continued to rely upon PPAs. Recently, a large number of new projects obtained their environmental permits and are likely to be installed in the current year. Nevertheless, the deployment of new power generation form ground-mounted plants will depend on the design of the renewable auctions foreseen by 2023, as inflation rates and prices are rising.
For the rooftop PV segment, in 2022, the market grew significantly, by more than 100% again year-on-year, and surpassed the 3 GW barrier, mainly driven, as said before, by national recovery plan funds and high electricity prices.
In relation to ground-mounted plants, it is clear that the higher the volume of projects under development, the larger the burden on companies, authorities, local communities and other stakeholders.
This general effect is increased by the Royal Decree-law 23/2020, which imposes strict deadlines on plants under development: all projects with network access permits in force when the decree was approved had to obtain their environmental authorisation before 25 January 2023. This deadline obliged companies to rapidly advance their permitting procedures, and put strong pressure on the administrative authorities, which struggled to process the volume of files. As a result, around 30 GW of renewable technologies received an environmental authorisation and are likely to be deployed within the next three years. Nevertheless, the projects are still waiting for their administrative and construction permits that need to be obtained before 25 July 2023, otherwise the projects will be dismissed; these are key milestones needed to fully deploy the power plants.
In 2022 Spain held two auctions (3rd and 4th auctions). While the 3rd auction was a small auction that awarded 31 MW at an average price of 53.88 EUR/MWh, the 4th action was wholly undersubscribed and ended empty as the reserve price set by the government, at 45.12 EUR/MWh, was well below the sector’s expectations at around 60 EUR/MWh. In the upcoming auctions expected in 2023, auction design needs to improve to attract interest from developers.
On the local communities’ side, the sheer volume of projects going through local permitting (amounting to 2-3 times the NECP targets), is generating a NIMBY effect, i.e. a ‘not in my backyard’ mentality. Certain local associations are opposing utility-scale renewable plants, requiring a significant communication effort from companies and UNEF, about the benefits of solar power on land use and biodiversity.
For rooftop PV, the main challenge is the length of permitting times (both at the administrative and network level), due to diverging processes across municipalities, and reduced permit exemptions for network access for rooftop PV. In addition, delays in the implementation of the national recovery plans’ support programmes are slowing down consumers and developers’ decision-making processes, who are now waiting for the funds to be available in their region.
Another important challenge for PV development, both ground-mounted plants and rooftop PV, is the lack of a skilled labour force which is driving an increase in salaries. Government professional training programmes must adapt to those new market developments.
Increasing electricity prices are also driving inflation rates, which are having an impact on projects’ profitability. Furthermore, Spain must accelerate its regulatory framework related to storage incentives as proposed by UNEF.
Spain’s high NECP targets, and the success of the national solar power market call for excellence from all parties: companies, the administration, and policymakers. In other words, the country’s ambition has to overcome the challenges to maintain the supportive solar ecosystem that has placed Spain in the group of the world’s top 10 largest markets. On the policy side, it is key to ensure regulatory stability, and to eliminate remaining barriers by streamlining administrative procedures, and network access, especially for smaller PV plants and self- consumption projects. On the sector side, companies need to respond to the growing NIMBY effect, and present projects with the highest standards in terms of environmental sustainability, positive social impacts, and transparency.
The complete report can be accessed here