Earlier this year in April, the Spanish government issued an important piece of legislation for self-consumption - Royal Decree 244/2019 - which has paved the way for a new segment in the country’s renewable energy sector. This Royal Decree completes the regulatory framework that was established at the end of last year with Royal Decree 15/2018, which suspended the infamous so-called ‘sun-tax’ that has been hindering the development of self-consumption in Spain since it was enacted in 2015. With the buzz around solar energy already at an all-time high in Spain, what does this new regulatory framework mean for Spain’s up-and-coming self-consumption segment?
The new Royal Decree not only provides a clear regulatory framework for self-consumption in Spain, but also defines different types of self-consumption, like collective and communal self-consumption. In addition, the new regulation reduces some of the administrative hurdles, especially for small-scale self-consumption systems, and simplifies the sale of excess energy to the grid for systems up to 100 kW.
Now that Spain has this regulation in place, the country’s self-consumption segment has been gathering a lot of attention from investors. Besides the fact that Spain has high levels of solar irradiation and room for growth for self-consumption systems, the arrival of market parity and the removal of regulatory roadblocks have created a profitable environment for the development of self-consumption PV installations.
In our recent webinar titled “Why is everyone talking about self-consumption?”, Roberto Pardal, Sr. Energy Advisor at Our New Energy, noted that for Spain to reach its 2030 renewable energy targets, the country’s PV sector alone will require around €70 billion in investments. This means means that the market has a big appetite for investors and developers to come to Spain and become part of the renewable energy revolution.
Pardal further adds that it is expected that self-consumption in Spain will be propelled by the installation of more than one million self-consumption systems in the coming decade. If the country follows this course, it might well be able to reach the energy efficiency targets set by the EU, facilitated by the smoother administrative processes, and more specifically, the better profit margins due to the reduction in PV generation costs and the elimination of extra regulatory expenses.
From the generation side of things, the development of the solar industry as a whole has major implications for the profitability of self-consumption.
According to Xavier Cugat, Technical Director at Holaluz, solar PV has the potential to become the main source of power generation in Spain by 2024. Currently, solar PV only contributes to around 5% of the annual power generation. In order for solar PV to achieve that, its share will have to grow to be approximately 25% of the power generation mix.
Such a massive influx of solar energy to the grid could affect market prices significantly. Cugat explained that having so much solar energy production during the day could cause market prices to plummet, like it has happened in other markets, such as Chile, where electricity prices drop significantly during midday.
Besides the technical issues and price fluctuations that might arise, Cugat stated that he expects a minimum of 3 GWs of self-consumption systems to be installed in the next four years. According to him, self-consumption will keep on growing due to two factors: lower energy generation prices and decreasing storage costs.
The price of electricity does not only reflect the cost of producing energy, but other costs, like transportation and distribution costs, that are incorporated in what consumers pay. The beauty of self-consumption is that these costs can be lowered and even eliminated in some cases. When it comes to storage costs, the increase in competition of battery technologies are directly contributing to the decrease in prices for storage systems. Fernando Romero, General Manager at EDF Solar, believes that the increase in self-consumption systems will depend on the rise of storage technologies, especially for large-scale solar installations.
Energy storage is becoming a more popular topic in Spain. However, as of this moment, solar + storage projects are not common. “Storage technologies could play a role in the future when market prices start dropping during sunny hours. This could allow solar energy to be stored during the day and dispatched during more profitable hours in the evening,” said Cugat. However, this is not yet the case.
Romero noted that EDF has indeed worked on a couple of C&I solar + storage projects already in Spain, but the storage market is still at a very immature stage. “In my opinion, the development of storage technologies will be coupled with the development of e-vehicles,” said Romero.
Right now, there are only a few battery manufacturers that are developing these storage technologies, but not enough to create a big change in the fleet of vehicles. According to Romero, it could take between 5 and 7 years for e-vehicles to become cheaper and more attractive than gas-powered vehicles.
Once that happens, small-scale self-consumption might become more attractive as energy can be produced and stored in the car batteries and later dispatched when needed, eliminating the need for a fixed, external battery for the solar array. For large-scale systems, e-vehicles might not be as effective and might require a different type of solution. Nonetheless, it will still take some time before battery manufacturers can produce cost-efficient storage systems to create an impact on the self-consumption segment.
Most of the recent growth in Spain’s solar energy market has been driven by its utility-scale segment. Around 80% of the country’s installed PV capacity consists of of utility-scale installations, while residential and C&I projects only account for 20% of the total installed solar energy capacity. Currently, Spain has less than 50.000 self-consumption systems, which is significantly less than Germany (1.600.000) and the UK (800.000), both of which have lower levels of solar irradiation than Spain. This shows that the Spanish self-consumption segment is still in its infancy and has much room for growth.
Pardal noted that moving forward the government should work towards facilitating the administrative procedures even further, more specifically for systems above 100 kW that still encounter some regulatory hurdles. Cugat explained that when the current regulation came out (RD 224/2019), the majority of market players were happy because of the previous situation that the market was in, which was very detrimental towards renewables.
However, if you compare it to other markets in Europe, Spain still has a long way to go. The market needs a simplified process, not only for small systems (which is already in place), but for larger systems as well. Romero agrees with both of Pardal and Cugat, and adds that the regulation should be developed in a way that it is not only well-structured, but practical as well. What the country needs is a regulatory framework that not only benefits small- and medium-scale projects, but large-scale projects as well. A standardized, homogenous administrative process is key for the development of self-consumption in all autonomous communities.