Solar energy is an extraordinary investment opportunity
backed up by the Spanish legislation !
1. Short about the unique income-yield possibilities provided by
the current Spanish legislation.
The Spanish Law, “Royal Decree” Number 436 of 2004, issued on the 12th of March 2004, – hereinafter referred to as the RD – offers an astonishing investment opportunity, as the subsidised income to the electricity producer can imply a yield as high as approximately 30% to 50% each and every year of the investor’s own net commitment - during 25 years!
A better investment opportunity is not easily found, especially as the yield is supported by the legislation of an EU country, which country at the same time currently is considered the world’s eighth biggest economy!
This opportunity will however not last for ever!
The limit for this generous legislation and energy policy is obviously linked to how quickly the Spanish Government’s target for 2011 can be achieved. Still there are many more high-yielding MW that remain to be installed.
2. A summary presentation of the Spanish legislation concerning
the production of electricity through solar energy.
The RD regulates all legal and economical aspects concerning the use of renewable energy sources for electric, thermal and other forms of energy production. The producers of energy (electric and thermal) from different renewable sources (wind, sun, biomass, earth heat, residuals, etc.) shall, according to the RD, be registered as producers benefiting from a “special treatment” - “regimen especial”.
Chapter I, article 2, paragraph 2, group b.1.1., of the RD, defines the solar energy producing installations, which exclusively are fuelled by photovoltaic solar energy, hereinafter referred to as the subgroup b.1.1.
Chapter II, section 1, article 4.1., informs us that the competent authority to give license for the “construction, use, major changes, transfer and closing of”, as well as for the recognition of such energy producing installations under the concept of “regimen especial”, are the Autonomous Regional Governments, the so called Comunidades Autónomas, (i.e. la Comunidad Autónoma de Madrid, de Catalunya, de Valencia, de Murcia, de Andalucía, etc.). It is only for special cases, e.g., if a solar park geographically would belong to more than one Region, or when the installed effect is superior to 50 MW, that the license-iving authority is the Spanish State itself.
Within the Region’s Administration it is normally the Regional Department of Energy Policy and Mining, which comes under the Ministry of Economy, which is the authority to grant the license for a solar park.
Section 3 under the same Chapter II, tells us that there is first one stage of inscription called the “preliminary” – “prevía” – , and thereafter a phase of “definite” – “definitiva” - inscription of an electric energy producer under “regimen especial”. The final registration takes normally place within a month after the environmental studies have been completed favourably. After having obtained the definite inscription in the special registry, the construction works of the Solar Park can start.
Once the Solar Park has been completed in terms of construction, or if it is has license to be built in phases, once such a phase has been completed, and the Certificate of Finalised Building Works has been issued by the Responsible Engineer, the contract for the compulsory purchase of the electricity under “regimen especial” shall be signed with the local electric company. The RD obliges the electric company to sign the contract within a month from the presentation of the just mentioned Certificate, Chapter III, article 17, paragraph 1.
Chapter IV, section 1, article 22, gives the electric energy producers under “regimen especial” two options how to sell the produced electricity.
Alternative one is to transfer the produced electricity to the local electricity company, whereby the price is fixed by the Spanish Government in periods of one year at the time (see below this section). This scheme is called “regulated”, or fixed, “tarifa regulada” – price and comes expressed as cents of € per kilowatt hour – kWh.
Alternative two is to sell the produced electricity on the free market, which is handled by a mechanism of offers organised by the Spanish electricity companies, whereby the daily market price plus a premium is paid to the energy producer, registered under “regimen especial”. This alternative is compulsory for installations which effect is higher than 50 MW.
Section 3, article 33 tells us about the “Prices and fiscal incentives
for installations belonging to category b., group b.1, solar energy.
Installation of photovoltaic energy, belonging to subgroup b.1.1.,
of an installed effect, less than 100 kW: the price: 575% during the first 25 years, from the moment the installation starts to produce electricity, and 460% thereafter.
The remaining installations under subgroup b.1.1. (in other words the ones which installed effect is higher than 100 kW): Price: 300% during the first 25 years from the moment the installation starts to produce and 240% thereafter.
This group is given the alternative for a so called “Prima”, which for the first 25 years corresponds to 250% and 200% thereafter. Fiscal incentive (%-age for the fiscal depreciation of the investment): 10%.”
Section 4, article 41, the sixth section of additional regulation regarding “The average price, or the price of reference, for the year 2004”, ruled that the price for electricity during that year was 0,72072 €/kWh.
3. The application of the RD and a yield indication from
the investor’s point of view.
Applying the just described legislation to solar panels with an installed effect of maximum 100 kW, made the owner/electricity producer entitled to invoice the electric company
during 2004:
5,75 x 0,072072 € (the regulated price fixed by the Spanish Government for 2004) = 0,414 €/kWh, multiplied with the price for electricity;
and during 2006:
5,75 x 0,076591 €, being the regulated price by the Spanish Government for 2006 = 0,4404 €/kWh.
It can be noted that the difference in price to be compulsorily paid by the electricity company from the electricity producer corresponds to an increase, in average over the two years, of not less than 6,37%, or 3,18% increase annually, which is slightly higher than the Spanish economy’s rate of inflation!
Depending on the solar radiation, which differs substantially from one area of Spain to another – see the attached solar map – the owner/producer of an installation of 100 kW can obtain a higher or a lower production and thereby achieve a higher or a lower gross income per year and thereby consequently a higher or a lower yield on his investment.
By studying the attached solar maps, which show the radiation over the earth (available on internet), it can be observed that southern part of Spain belongs to the area of European mainland with the highest radiation, or 225 to 250 w/m2, not far away from the highest radiation over the earth which is found over Sahara and Arabia!
The best areas on Spanish mainland for solar panels are the Regions of Murcia, Andalucia (comprising the provinces of Almería, Granada, Malaga, Huelva and Cadiz) and Albacete province, which belongs to the Region of Castilla La Mancha.
Not only the radiation is of importance. Also, the temperature is crucial. The lower the temperature is the higher effect is produced by the solar panels and vice versa. Therefore, a higher altitude brings normally down the temperature. For this reason, the inland areas of Murcia and the south eastern parts of the adjacent Albacete province belongs to the best areas in Spain of production of electricity through photovoltaic panels.
The estimated yield calculated for fixed panels respectively for trackers of 50 respectively for 100 kW installed effect in our 2 MW solar park in “Alhama de Murcia on offer, can be studied on the attached Financial Charts for 50 kW and 100 kW investments.