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Spain plans to reduce fixed return rates for renewables 2020-25

Highlights

Returns to fall to 7.09% from current 7.503%

Rates for older installations to be frozen until 2031

8 GW due to be installed prior to 2020

Barcelona — Spain's government wants to reduce the fixed return rates for renewable capacity for the period 2020-2025, dropping the return to 7.09% per year from a present 7.503% per year, according to a law proposal passed at the end of the year by the country's Ecological Transition Ministry.

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The change comes after the regulator in November proposed a switch to using the weighted average cost of capital, or WACC, for calculating the returns, moving away from the previous methodology that was based on 10-year sovereign bonds.

The law, if approved by the Spanish parliament, would also reduce the returns from transport and distribution activities on the non-mainland territories to 5.58% per year from 6.503% per year.

However, the government has also proposed that older renewable installations -- those that existed before the 9/2013 Royal Decree -- should be exempted from the changes, and have their rates frozen at the rate of 7.389% until 2031.

This is after a number of successful legal challenges from international investors against the Spanish state.

The ministry said the amount they will receive during the period can then be offset against any payout they are due.

To date, five cases have been awarded to the investors, while a further 35 are under process, with as much as Eur8 billion ($9.1 billion) being sought.

Spain has a current installed capacity of close to 50 GW of renewables (including hydro), with 8 GW more due to be installed in the next year to meet the EU's 2020 target of 20% of gross energy from renewables.

The country has not made official the framework beyond 2020, but expects to continue to award new capacity via auctions, although the pace of PPA-backed merchant plants has been picking up in the last year with these able to compete directly in the wholesale markets due to the falling costs in the sector.

It is estimated that the country would need to add a further 4 GW per year in order to meet EU targets for 2030.

--Gianluca Baratti, newsdesk@spglobal.com

--Edited by Ikhhlaq Singh Aujla, newsdesk@spglobal.com