Is Distributed Generation in Spain Waking Up from Its Long Nap?

For a long time, Spain’s intent to launch a clean energy industry was resolute despite the mishaps that occurred after the financial crisis of 2008 and the effect of European fiscal deficits in 2009/2010. In fact, my career in the sector began thanks to a job posting that required engineering and Spanish knowledge (to cover the growing Spanish renewables market).

With the financial crisis, Spain’s renewable energy ambitions not only collapsed, but the industry was thrown into the fire as part of the political and economic post-crisis fallout. The country stopped any new installations and slashed already signed feed-in tariffs (FITs) while the public opinion also turned against the industry.

Blocking the Sun

On the distributed side, the country passed from a FIT to a de facto veto on installations, then to a model that taxes auto-consumption on installations that maintain a connection to the grid, formally known as the Royal Decree on Auto Consumption, colloquially known as the Sun Tax.

The Sun Tax has a fixed component that, in reality, is a demand charge. Each year, 75% of it is paid per kilowatt of installed capacity, and the remaining 25% is a variable component that is paid for each kilowatt-hour consumed by the owner (coming from the grid or owner’s system). The fees are set by the government each year and vary depending on location and the customer's type of grid connection.

The Sun Tax Does Not Always Shine

The Sun Tax came into effect in October 2015, just as Spain prepared for its December 2015 general election. With the election in sight, the government moved into other matters and did not pass the necessary regulation to make the Sun Tax applicable in practice.

When the government failed to win a majority in the parliament, any possibility of passing the regulation collapsed. It took a second election and almost 11 months to form a new working government. While the government is still led by the Partido Popular—proponents of the Sun Tax—it does not hold a majority; therefore, other parties can block any attempt to pass the tax’s secondary regulation.

This has put the Sun Tax and the future of distributed energy resources (DER) in limbo. Any financial analysis of distributed generation in Spain that considers the tax would reduce the competitiveness of DER solutions against grid electricity, but there is no process to pay this charge to the government or utility. This put the industry on hold, as potential customers could not estimate if and when an installation would be paid back by the savings. But this is starting to change. Even in the worst case scenario, DER installations are becoming economically attractive. DER opportunities in Spain will be presented in the second part of this blog.