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Analyzing the impact of cost-containment mechanisms on the profitability of solar PV plants in Spain

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  • Mir-Artigues, Pere
  • Cerdá, Emilio
  • del Río, Pablo

Abstract

From mid-2007 to September 2008, the Spanish PV sector experienced an investment boom, which led to a ten-fold increase in solar PV deployment. The concern of the government about the large increase in the associated support costs through a feed-in tariff led to the implementation of several cost-containment regulations. These included a cap on the electricity generation being eligible for support, a grid access charge, a generation charge, a shortening of the support period and the updating of tariffs below the consumer price index. The aim of this paper is to analyze the impact of those cost-containment mechanisms on the profitability of solar PV plants in Spain. The results show that these measures have had a moderate impact on the profitability of those plants, which is still relatively high, with internal rates of return which are always above 7% in all the simulated cases. However, their impact is mediated by different features of the plant, including the levels of the initial investment (upfront costs), borrowing and operation and maintenance (O&M) costs. It is also mediated by policy variables (such as changes in the tariff-updating method and the level of the grid-connection charges) and by other variables, e.g., the interest rates of loans. The specific impact of each of the cost-containment measures has also been analyzed. Our findings show that the generation charge has the greatest impact, followed by the change in the tariff-updating mechanism, the generation cap, the shortening of the support period and the grid access charge.

Suggested Citation

  • Mir-Artigues, Pere & Cerdá, Emilio & del Río, Pablo, 2015. "Analyzing the impact of cost-containment mechanisms on the profitability of solar PV plants in Spain," Renewable and Sustainable Energy Reviews, Elsevier, vol. 46(C), pages 166-177.
    • Handle: RePEc:eee:rensus:v:46:y:2015:i:c:p:166-177
    DOI: 10.1016/j.rser.2015.02.005
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    References listed on IDEAS

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    1. Pere Mir-Artigues & Pablo del Río, 2014. "Combining tariffs, investment subsidies and soft loans in a renewable electricity deployment policy," Working Papers 2014/23, Institut d'Economia de Barcelona (IEB).
    2. del Río, Pablo & Linares, Pedro, 2014. "Back to the future? Rethinking auctions for renewable electricity support," Renewable and Sustainable Energy Reviews, Elsevier, vol. 35(C), pages 42-56.
    3. Mir-Artigues, Pere & del Río, Pablo, 2014. "Combining tariffs, investment subsidies and soft loans in a renewable electricity deployment policy," Energy Policy, Elsevier, vol. 69(C), pages 430-442.
    4. Branker, K. & Pathak, M.J.M. & Pearce, J.M., 2011. "A review of solar photovoltaic levelized cost of electricity," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(9), pages 4470-4482.
    5. del Río, Pablo & Mir-Artigues, Pere, 2012. "Support for solar PV deployment in Spain: Some policy lessons," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(8), pages 5557-5566.
    6. de la Hoz, Jordi & Martín, Helena & Ballart, Jordi & Monjo, Lluis, 2014. "Evaluating the approach to reduce the overrun cost of grid connected PV systems for the Spanish electricity sector: Performance analysis of the period 2010–2012," Applied Energy, Elsevier, vol. 121(C), pages 159-173.
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    2. López Prol, Javier, 2018. "Regulation, profitability and diffusion of photovoltaic grid-connected systems: A comparative analysis of Germany and Spain," Renewable and Sustainable Energy Reviews, Elsevier, vol. 91(C), pages 1170-1181.
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    5. Mir-Artigues, Pere & del Río, Pablo & Cerdá, Emilio, 2018. "The impact of regulation on demand-side generation. The case of Spain," Energy Policy, Elsevier, vol. 121(C), pages 286-291.
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    11. Batalla-Bejerano, Joan & Trujillo-Baute, Elisa, 2016. "Impacts of intermittent renewable generation on electricity system costs," Energy Policy, Elsevier, vol. 94(C), pages 411-420.
    12. Lomas, J.C. & Muñoz-Cerón, E. & Nofuentes, G. & de la Casa, J., 2018. "Sale of profitable but unaffordable PV plants in Spain: Analysis of a real case," Energy Policy, Elsevier, vol. 117(C), pages 279-294.
    13. Sergio Coronas & Jordi de la Hoz & Àlex Alonso & Helena Martín, 2022. "23 Years of Development of the Solar Power Generation Sector in Spain: A Comprehensive Review of the Period 1998–2020 from a Regulatory Perspective," Energies, MDPI, vol. 15(4), pages 1-53, February.
    14. Muñoz-Cerón, E. & Lomas, J.C. & Aguilera, J. & de la Casa, J., 2018. "Influence of Operation and Maintenance expenditures in the feasibility of photovoltaic projects: The case of a tracking pv plant in Spain," Energy Policy, Elsevier, vol. 121(C), pages 506-518.
    15. Oscar W Fitch-Roy & David Benson & Bridget Woodman, 2019. "Policy Instrument Supply and Demand: How the Renewable Electricity Auction Took over the World," Politics and Governance, Cogitatio Press, vol. 7(1), pages 81-91.
    16. José Ángel Gimeno & Eva Llera & Sabina Scarpellini, 2018. "Investment Determinants in Self-Consumption Facilities: Characterization and Qualitative Analysis in Spain," Energies, MDPI, vol. 11(8), pages 1-24, August.
    17. Panagiotis Anagnostopoulos & Niki-Artemis Spyridaki & Alexandros Flamos, 2017. "A “New-Deal” for the Development of Photovoltaic Investments in Greece? A Parametric Techno-Economic Assessment," Energies, MDPI, vol. 10(8), pages 1-25, August.
    18. López Prol, Javier & Steininger, Karl W., 2017. "Photovoltaic self-consumption regulation in Spain: Profitability analysis and alternative regulation schemes," Energy Policy, Elsevier, vol. 108(C), pages 742-754.
    19. Mir-Artigues, Pere & Cerdá, Emilio & del Río, Pablo, 2018. "Analysing the economic impact of the new renewable electricity support scheme on solar PV plants in Spain," Energy Policy, Elsevier, vol. 114(C), pages 323-331.
    20. López Prol, Javier & Steininger, Karl W., 2020. "Photovoltaic self-consumption is now profitable in Spain: Effects of the new regulation on prosumers’ internal rate of return," Energy Policy, Elsevier, vol. 146(C).
    21. Best, Rohan & Chareunsy, Andrea & Li, Han, 2021. "Equity and effectiveness of Australian small-scale solar schemes," Ecological Economics, Elsevier, vol. 180(C).
    22. Castro-Rodríguez, Fidel & Miles-Touya, Daniel, 2023. "Impact of Spanish renewable support scheme reforms on the revenues of photovoltaic power plants," Utilities Policy, Elsevier, vol. 80(C).

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