Banks are closing the tap on photovoltaic projects that do not have a long-term contract for the sale of their electricity at a fixed price, due to the uncertainty generated by negative prices and zero euros in the market.
Financing problems for independent developers arise when it is necessary to accelerate the deployment of solar parks with 50,000 million to meet the new objectives of the new PNIEC.
Spain has to carry out a massive expansion of new renewable plants in the coming years to advance in the decarbonisation of the economy and to meet the ambitious green objectives committed to by the European Commission. And at a key moment to definitively promote the deployment of all these renewable installations, the volatility of electricity prices is generating doubts about the health of the sector and the viability of many of these projects. And this is already causing banks to close the tap on financing for hundreds of green plant projects yet to be built.
The electricity market has gone from reaching historic highs during the worst of the energy crisis to accumulating many moments of rock-bottom prices. Over the last year, the electricity market has recorded hundreds of hours at zero euros and has also recorded negative prices for the first time in history, a result of the effect of the massive deployment of new renewables (especially photovoltaics) and the market’s own operating rules.
The electricity market, also known as the pool, sets prices through a marginalist system, which means that the latest and most expensive technology needed to meet demand sets the price for all the others every hour of the day. When the production of renewables (with very low marginal costs) and other technologies such as hydroelectric and nuclear is sufficient to cover all consumption, the price of electricity plummets. Zero and negative prices are concentrated in the central hours of the day, which is when the production of photovoltaic plants -which depend on the sun- and that of the rest of the generation technologies accumulates.
The proliferation of zero or negative euro prices is causing alarm in the electricity sector due to the enormous distortion that it represents for plants in operation to cover their production costs and to encourage investment in new renewable plants. The energy sector, and specifically the renewable sector, is warning of the impact on business of this ‘cannibalisation’ of electricity prices, as it may jeopardise the profitability of green plants – current and future – and may slow down investments in new developments due to the lack of incentives and the uncertainty of market developments.
The renewable energy sector is warning that this scenario of volatility and uncertainty is preventing many solar plant developers (wind plants are not being affected in the same way) from having access to the bank financing necessary to develop their projects. Banks are now more selective and are only providing financing to large energy groups or to projects that have already signed contracts to sell their electricity in the long term and at a fixed price (known as PPA according to the jargon of the sector), while they have practically turned off the tap to the plants of independent developers who have not protected their future income with this type of contract and have to sell all their electricity on the wholesale market.
“With these prices there is no financing for the plants that are going to sell their electricity on the market. “Independent investors do not have financing if they do not have a good signed PPA or have been awarded in well-designed auctions,” warns José Donoso, the general director of the Spanish Photovoltaic Union (UNEF). “Right now there is no financing for projects that are going to market. Nothing. Until recently some banks continued to provide financing, but not anymore,” stresses the head of the solar employers’ association.
The banking sector admits that very different treatment is now given to projects that are going to sell their electricity on the market (merchant) and those that have signed PPAs with minimum conditions, pointing out that it is not impossible for the former to obtain financing, but recognizing that it is much more complicated. Some financial institutions justify not granting financing to merchant plants in their need to diversify risks, because in many cases the banks already have a portfolio of projects financed with these characteristics with agreements prior to the accumulation of knockdown prices in the electricity market.
Hundreds of independent photovoltaic projects are experiencing problems in accessing the necessary credit, while the wind energy sector is freeing itself from the lock on financing, as confirmed by several sources in the energy industry involved in this type of process. The concentration of zero or negative euro prices in the hours when photovoltaics produce electricity is putting solar energy in the spotlight. It is at the very origin of the ‘cannibalisation’ of prices and suffers its consequences more directly.
“The photovoltaic energy sector is being stigmatised for being responsible for zero prices in the electricity market. Captured prices for photovoltaics generate mistrust,” explains Manuel Mingot, Project Finance partner at the law firm Squire Patton Boggs. “There is liquidity in the market, but there are also many cautions. Banks require photovoltaic project promoters to have a PPA. If the plants do not have the sale of energy signed and have to go to the market, there is no financing at all,” he confirms.
The Government has just approved the new National Integrated Energy and Climate Plan (PNIEC), the update of the roadmap to decarbonise the economy and promote clean energy during this decade. A green megaplan that raises the current renewable deployment targets (up to 81% of all electricity generation in 2030) and has the expansion of photovoltaic solar power plants as one of its mainstays.
The objective set by the Executive is to reach the end of the decade with 76,000 megawatts (MW) of photovoltaic energy, of which 19,000 MW will be self-consumption, which will require an accelerated deployment of new installations from the current 28,500 MW of solar plants and the around 7,000 MW of self-production already underway in homes and businesses.
The Government’s green plan includes the mobilisation of investments of 308 billion euros by 2030, of which the vast majority – 82%, some 252.5 billion – will come from private companies. In the case of the planned installation of new photovoltaic plants, internal calculations by companies indicate that investments of some 50 billion will be necessary, all of which will come from the private sector. The solar energy industry warns of the paradox that the current scenario of credit restrictions for solar projects coincides with an update of the PNIEC in which it is assumed that the financing of these projects comes from private initiative. Bill stalled
The Government and the autonomous communities have just given the construction authorisation to around 45,000 MW of new renewable plants (with approximately 80% solar power and 20% wind power) and which have to be operational by mid-2028 at the latest, after the three-year extension of the maximum deadlines approved by the central Executive.
However, the three-year postponement was approved through the omnibus royal decree last December and its current processing as a bill is stuck in the Congress of Deputies, which generates another additional uncertainty for the sector and may also hinder obtaining financing for some of the projects. If the plants are not ready on time, the projects would lose, after years of paperwork, the highly coveted connection points to the electricity grid that they had already obtained. “The solution to facilitate financing is more legal certainty,” says Manuel Mingot, from the law firm Squire Patton Boggs, regarding the doubts about the final approval of the bill and the technical amendments linked to the authorisations for new renewables that the parliamentary groups have presented in this process. Legal certainty and also “price stability in the electricity market, which will be achieved with storage,” says Mingot. “Storage must be regulated, it is the way to sell electricity to battery operators and then resell it at a better price.”
The photovoltaic employers’ association UNEF is calling for greater stability in electricity prices and thus to facilitate obtaining financing, to encourage and facilitate the signing of long-term contracts for the sale of electricity at a fixed price (PPAs) and also for the Government to launch new auctions with guaranteed remuneration for green plants. “More auctions, but above all well-designed auctions,” says the director general of UNEF.
The photovoltaic employers’ association is committed to including anti-speculative measures in the next auctions (requiring that only projects that already have the authorization for their construction can be presented to avoid them being ghost projects); also anti-monopoly clauses (that a single owner cannot be awarded more than 20 or 30% of the green power that is auctioned); to extend the duration of the periods in which a fixed price for electricity sale is guaranteed to equal it to the amortization period of the plants (going from the current 12 years to 15 or 20 years); and also that a portion of the auctioned power be reserved for hybrid battery projects.
