Spanish renewables auction sees BP harness PV

Spanish solar photovoltaic (PV) projects tendered in an auction last month saw heavy bidding and a win for oil major-controlled Lightsource bp, highlighting the attraction of the country's strong solar resources and friendly permitting environment.

The auction saw 9 GW of bids submitted for 3 GW of renewable projects tendered in three categories: solar PV, onshore wind, and technology-neutral. The bidders won just over 3 GW (3.034 GW) of capacity, of which PV projects made up about 2 GW and wind made up about 1 GW, according to a government statement on 26 January. PV projects absorbed all the contracts offered under the technology-neutral category. The winning projects will provide energy for 12 years while obtaining state funding through contracts for difference (CfD).

Spanish PV attracts would-be solar generators from Europe and internationally by offering two mature routes to market, public auctions such as the one last month, and private power purchase agreements (PPAs), wrote Research and Analysis Manager Josefin Berg in IHS Markit's regional integrated insight report on the Spanish auction.

Projects signing PPAs generally earn higher prices than their auction counterparts but what is crucial for the companies involved is that both routes remain open. "There's no contradiction in companies both competing in PPAs and participating in the auction. Despite declining power prices, we see a lot of PPAs being signed for wind and solar, and we see how large companies are trying to benefit by getting a foothold in the Spanish market through PPAs," said Berg.

"The auction was not necessary for most of the companies bidding because the PPA market is so strong. It was kind of seen as a bonus," she said.

The report revealed large utilities and independent power producers (IPPs) took a much larger share of the PV contracts in January's auction than they had been doing a decade ago under a feed-in-tariff regime that ran from 2007 to 2013.

The latest auction was oversubscribed at 3.034 GW, continuing the trend from Spain's 2017 renewables auction that saw over 5.037 GW of renewable projects awarded for a 5 GW auction (about 4 GW in PV and 1 GW in wind), according to UK-based law firm Herbert Smith Freehills. The newly-awarded projects will be the first under a Spanish remuneration regime that received legislative approval last year. Spain will carry on with auctions under this regime, aiming to add a total of 10 GW in PV capacity and 8.5 GW in wind capacity, until 2025.

Spain is hoping to use the auctions to meet national targets under its Energy and Climate Plan (PNIEC) that fulfill its climate commitments as an EU Member State. It also aims to achieve a 100% renewable electrical system by 2050, according to law firm Latham and Watkins.

Oil majors electrify with PPAs

Oil companies in the midst of decarbonizing are becoming more active in the electricity sector as they grow more comfortable engaging in PV businesses, said Berg.

In the case of Shell, it is signing PPAs to buy electricity for trading instead of directly developing solar projects. It signed a deal to purchase PV-sourced power from Madrid-based developer Solaria. "This solar power purchase agreement will enable us to supply more clean power to our customers, while also helping to support the continued growth of renewable power in Spain," said Rupen Tanna, general manager for power at Shell Energy Europe, after the January agreement was signed.

But this didn't stop Shell's Spanish developer partner from participating. Solaria confirmed in a statement it won two bids at the auction of PV projects, totaling 100 MW and 80 MW.

BP, on the other hand, is taking the generator and the trader route. It pivoted to solar in Europe when it obtained a stake in UK-headquartered solar developer Lightsource in 2017. A Madrid-based company affiliated with Lightsource bp, Lightsource Renewable Energy Spain Development, came away from the auction with a modest PV project of about 5 MW.

Lightsource bp was trying both routes in the month ahead of the auction. It signed a deal with RIC Energy to develop 1.06 GW of capacity at 14 PV sites across Spain, and was approaching offtakers for 10-year, European cross-border PPAs. This type of energy supply deal lets companies decarbonize energy supplies and hedge against energy price risk even without access to renewables, according to a paper by classification body DNV.

French major Total Group has the ability to take both routes. Its PV strategy has seen it secure a massive 3.3 GW of PPAs to power all its industrial operations in Europe, but it has the potential to sell power supplies to third parties, IHS analysts say.

Last year, Total made another foray into the Spanish PV developer market when its solar power operation affiliate, Total Solar International, agreed to develop 2 GW of projects. It has praised Spain's "unparalleled" European solar resources, building on its history of operating in Spain with businesses such as natural gas, power, and petrochemicals since 1964. Moving into PV is part of Total's stated goal to build a portfolio of low-carbon electricity operations, including for residents in Spain, that accounts for 40% of its sales mix by 2050.

Posted 12 February 2021 by Cristina Brooks, Senior Journalist, Climate & Sustainability, IHS Markit