Spanish Auto-Consumption PV Market Starts to Develop

by Analysts
November 5, 2012

The increasingly competitive cost of PV electricity has helped open a new market segment in certain regions of Spain: auto-consumption installations that will receive no incentives.  PV installations have been realized in accordance with new regional administrative procedures and electric company responses related to national regulations in force since December 2011 (Royal Decree 1699/2011).

The national regulations allow PV installations up to 100 kW to be connected to a consumers interior electricity network. While consumers could benefit from avoiding increasingly expensive electricity purchases, there is still no allowance to export excess PV power. Additional benefits may occur by avoiding value added tax (VAT) payments on electricity purchase. Both of the primary electric companies are processing applications for connection. However, one electric company requires system controls that prohibit export, while the other allows export, but does not remunerate it.

The graph shows a cost-of-electricity (COE) scenario for a 25-year purchase-savings project. Note that (maximum) instantaneous PV power production always has a corresponding (minimum) onsite consumption demand so that export does not occur. Purchase savings are based upon avoided electricity purchase prices and the levelized cost of electricity (LCOE) generated on site by PV.

Adapted from analysis in the NPD Solarbuzz European PV Markets Quarterly

The scenario illustrates a 100 kW installation completed in Q4’12, with the initial cost of €145,000 resulting in a 25-year net present value of €193,000 (NPV, 6% discount rate), and a project IRR of 15%. The electricity purchase price is set to rise at 5% per year, while the project LCOE value is effectively locked from the start. This reflects a typical electricity price (pre-tax) for commercial consumers with a >100 kW service contract and the consumption range of 20 to 500 MWh/year.

While the economics of the proposition may be compelling to commercial consumers that are not currently cash-strapped, the outlook for the new segment is unclear. This is because of pending government regulations initiated during 2011. The government is required to define the economic terms of auto-consumption allowances, including balancing interval (instant, annual, etc.), export value, and access fees. The draft version from 2011 was not considered then to be economically compelling.

Spain remains embroiled in social, political, and financial crises resulting in low financial market liquidity and low consumer/business confidence, which directly impact the PV market, as does the unfolding and complex Energy Market Reform campaign.

The good news for PV is that consumer electricity prices are rising, and may increase significantly in January 2013. The bad news is that PV adoption has been negative based upon recent governmental actions, and the worry is that this trend will dominate domestic PV demand in the short-term.

A possible wild card is that the electric companies could embrace the distributed PV applications, and so benefit by delivering the corresponding market demand while also locking in LCOE against their own rising generation and distribution costs. This turn of events would be consistent with market consolidation trends, and would create pressure on smaller businesses.