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Aquila snaps up subsidy-free project pipeline in red-hot Spanish solar market

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Aquila snaps up subsidy-free project pipeline in red-hot Spanish solar market

Aquila Capital Investmentgesellschaft Mbh snapped up the rights to a portfolio of more than 400 MW of onshore wind and about 300 MW of solar projects in Spain, expanding its presence in a market that is expected to see major growth in subsidy-free renewable energy development.

In a sign of the maturity of the Spanish renewables market, the Hamburg, Germany-based investment manager said it plans to sign long-term power purchase agreements, or PPAs, to secure revenue from the projects and capitalize on the "very favorable local conditions" and steep declines in technology costs that now make projects viable without subsidies.

The Spanish solar market, in particular, is expected to see a wave of such projects coming online in the next few years with developers selling electricity directly to utilities or corporate off-takers looking to secure stable power prices and burnish their sustainability credentials.

The deal "underlines the importance of the Iberian Peninsula for investments in European renewable energy infrastructure," Aquila Capital co-founder and CEO Roman Rosslenbroich said in a statement March 18. "To us, Spain and Portugal are key locations for our institutional investors and we intend to further expand our operations in the area."

Aquila did not release financial details around the deal. It expects construction on the portfolio to start by the end of 2019 and grid connections to be completed by 2021. The firm already owns a Portuguese solar portfolio with a capacity of more than 180 MW.

Its latest acquisition follows similar deals by German asset managers LUXCARA GmbH and Allianz Capital Partners GmbH, which respectively acquired a 121-MW solar project in Spain and a completed 46-MW plant in Portugal in recent months. Both projects are forgoing subsidies to sell their electricity through PPAs instead.

The deals are among roughly 4,200 MW of subsidy-free solar projects that have signed PPAs in Europe so far, including 2,300 MW in Spain, according to Pietro Radoia, a solar analyst at market researcher Bloomberg NEF. Radoia said he has tracked about 1,400 MW of deals involving institutional investors snapping up late-stage projects in Spain, noting that the trend was remarkable given those firms' risk-averse attitude.

Analysts and industry insiders said subsidy-free projects in Spain are attracting broad investor interest because of the volume of suitable projects in the pipeline, lower competition compared with auction-driven markets and the prospect of higher returns amid rising power prices.

Higher wholesale rates for electricity are also making direct off-take agreements increasingly attractive to corporate consumers, ranging from IT companies to the dairy industry. "Signing a PPA for solar in Spain now could save [companies] a lot of money," Andrea Panizzo, head of business development for Europe and the Middle East at Enel Green Power, said at an industry conference earlier in March.

Industry observers are projecting major renewables growth in Spain following several years of drought. In 2013, the then-government decided to retroactively slash generous feed-in tariffs, spooking international investors and causing wind and solar installation rates to crater. With technology costs declining and power prices forecast to rise, developers are now returning to build projects without subsidy support.

Solar industry association UNEF forecasts more than 4 GW in new installations for 2019 and an average of 3 GW in annual additions for the following decade to bring total installed capacity in the country from 9 GW now to 42 GW by 2030. Under the government's most recent clean energy targets, Spain aims to draw at least 70% of its electricity generation from renewable sources by 2030.