Renegotiation of Solar Power Purchase Agreements

Table of Contents

Project cost and funding mix
Demand, supply, and risks
Initial problems with the project and final restructuring
References

Project cost and funding mix

A French oil company enters the fast-growing Spanish market through its subsidiary Total Solar International through agreements with Powertis and Solarbay Renewable Energy to develop 2 GW of generating capacity. According to Frances Total entered the Spanish solar market with two deals. (n.d.), the cost of the project with Powertis is 700 million euros. Total Solar International will own 65% of the company, and Powertis 35%. Regarding the project with Solarbay, Total Solar International has signed an agreement to acquire 100% of the portfolio of solar photovoltaic projects. According to Frances Total entered the Spanish solar market with two deals. (n.d.), Totally did not disclose the value of this deal, but it would pay fees to firms at agreed milestones during project development.

According to Europes Largest Solar Power Plant: Francisco Pizzaro. (2021), Spain and France have signed an agreement to construct a 590 MW solar power plant. The project, called Francisco Pizarro, will be the largest European solar power plant. The agreement has been signed between Iberdrola from Spain and Danone from France. The cost of building a solar power plant will be $ 364 million.

Demand, supply, and risks

Solar energy in Spain has been in stagnation for the past few years, but now the country is becoming the leader in terms of industry growth in Europe. Duffield (2021) notes that the sun could become the primary source of electricity in the country by 2030. Moreover, according to Solar Power Europe (2020), at the end of 2019, Spain ranked first in the EU in terms of solar capacity growth over the year. In turn, in 2020, the country became the European leader in terms of the volume of concluded power purchase agreements.

Duffield (2021) asserts that risks should be distinguished according to the stages of operation of renewable energy facilities: design, construction, and function. During the design phase, the greatest danger is posed by the risks associated with errors in assessing the potential of resources in the area of object creation, errors in the choice of the site for placement, and errors in the selection of equipment. When preparing a feasibility study and organizing investments, strategic, currency, and investment risks are the most significant. During the construction and operation phase, technological, technical, and management risks prevail.

Initial problems with the project and final restructuring

According to Fernández-González et al. (2020), until the early 2010s, Spain was an example of the intensive development of renewable energy technologies, but in 2012 the states energy policy began to change. In January 2012, the Spanish government passed Law RDL 1-2012, which imposed a moratorium on subsidizing new renewable energy projects. Moreover, the countrys government faced a tariff deficit for electricity. To address this issue, the authorities have taken several steps, including increasing taxes on electricity generation. In addition to legislative reasons, there are other reasons for the volatility of the Spanish energy market. Thus, the demand for electricity in the country has fallen by 8% since 2008 due to overproduction, which also led to a decline in investor interest. All these prerequisites led to a significant reduction in the commissioning of newly installed capacities.

However, in 2020, the countrys leadership revised its energy policy and headed for solar energy development. An action plan with clear objectives was prepared the National Integrated Energy and Climate Plan 20212030 (PNIEC). Duffield (2021) states that according to this plan, by 2030, 74% of the countrys electricity should be produced from renewable energy sources. It is crucial because both manufacturers and investors are interested in this state of affairs. Also, the government has prepared a calendar of auctions for the next five years. Moreover, efforts are being made to streamline administrative procedures and strengthen administrative bodies, preventing problems from arising.

According to Iberdrola and Danone España join forces behind the creation of Europes biggest photovoltaic plant (2021), Iberdrola and Danone have signed a long-term Power Purchase Agreement (PPA) that will drive Francisco Pizarros growth. The start of commercial operation is scheduled for 2022.