1. Regulation, profitability and diffusion of PV grid connected systems in Spain 2004-2013
Javier López Prol
Promitheas conference
Athens, October 2015

2. Content Introduction: climate change, energy and PV
Spain & PV: a love and hate relationship
Determinants of profitability
Financial conditions
Solar irradiation
Costs
Electricity prices (Regulation)
Profitability and diffusion
Sensitivity analysis
Conclusions

3. Source: International Geosphere-Biosphere Programme
“Anthropogenic greenhouse gas emissions have increased since the pre-industrial era driven largely by economic and population growth”
“Human influence has been detected in warming of the atmosphere and the ocean, in changes in the global water cycle, in reductions in snow and ice, and in global mean sea level rise; and it is extremely likely to have been the dominant cause of the observed warming since the mid- 20th century” (IPCC, 2014:47).
Source: International Geosphere-Biosphere Programme

4. 1. Introduction Renewable energies Solar: most abundant resource
Not only for sustainability, but also for energy security
Soºurce: EPIA and Greenpeace

5. 1. Introduction Renewable energies Potential (EJ/year) Theoretical
Technical
Sustainable
Production 2008
Biomass
2,400
800
100
50.3
Geothermal
41,700,000
720 22
0.4
Hydropower
504,000
160 12
11.6
Solar
3,900,000
280,000
10,000
0.5
Wind
110,000
1,700
>1,000
0.8
Total renewables
46,000,000
283,500
>11,000 64
Source: WBGU, 2011

6. 1. Introduction
Experience curve: historical production costs of modules and forecast
Source: IEA (2014)

7. 1. Introduction
Source: REN21 (2015)

8. Spain: 45% of global installed capacity in 2008
2. Spain & PV: love & hate
Spain: 45% of global installed capacity in 2008
Source: ASIF (2009)

9. Spain: 0% of global installed capacity in 2014
2. Spain & PV: love & hate
Spain: 0% of global installed capacity in 2014
Source: REN21 (2015)

10. 2. Spain & PV: love & hate Our hypothesis:
Profitability is the main driver of diffusion. A profitability bubble created by too generous incentives in a time of declining costs, caused a diffusion bubble which bust when the incentives were removed due to the economic crises and the high policy costs

11. 3. Determinants of profitability
3.1. Financial conditions:
Typical financial conditions: 80% financed in 10 years at market interest rates (Average of the period ):
- Residential or small scale (SC) (R): 7,15%
- Commercial-Industrial or medium scale (MC) (C-I): 5,25%
- Utility or large scale (LC) (U):3,78%
Other assumptions:
Electricity prices escalation rate: 2%
O&M cost: 1% of initial investment
Degradation rate: 0,8%
Lifetime of the system: 25 years

12. Yearly PV power (kWh/1kWp)
3. Determinants of profitability
3.1. Solar Irradiation
Yearly PV power (kWh/1kWp)
horizontal
vertical
optimal
minimum
891
671
1001
average
1165
874
1328
maximum
1323
982
1475
Andalucía
1248
899
1406
R and C-I U
Source: PVGIS

13. 3. Determinants of profitability
3.1. System cost
Smaller installation,
higher cost
Source: IEA

14. 3.1. Electricity prices (regulation)
3. Determinants of profitability
3.1. Electricity prices (regulation)
Quota + degression
FIT
Moratorium
≤100kW
≤100kW
100kW-10MW
roof≤20kW
100KW-50MW
ground≤10MW
roof 20kW-2MW
10-50MW
Pool RD
436/2004
RDL
1/2012 RD
2818/1998 RD
661/2007 RD
1578/2008 RD
1565/2010
Source: own

15. 4. Profitability and diffusion
Upper line: soft loans (3%) and max. subsidy (40% cost)
MC installations, high FiTs
MC installations, low FiTs
Source: own

16. 5. Profitability and diffusion
Diffusion bubble
Profitability bubble

17. 5. Profitability and diffusion
PV boom happened in a moment when the profit rate of the economy was crumbling
(almost 10 percentage points in 2009 and 17 pp between according to AMECO)

18. 6. Sensitivity analysis
Pvin (€/kWp)
System cost
1285
εPu (%)
Escalation rate of Pu 2
Pu (€cts/kWh)
Electricity price
4,43
Base case: current situation (2013) of the Utility segment without any incentive, high irradiation and optimal tilt.

19. 7. Conclusions False myths: Myth Reality
- Diffusion bubble caused by profitability bubble
- Profitability bubble (understood as general high profitabilities for all segments caused by the combination of FiTs and declining cost) was subsequent to the diffusion bubble, not the cause of it
- Too generous FiTs caused diffusion bubble
- FiTs were designed to provide a return on investment below 5%.
- Declining costs and favorable exchange rate caused the diffusion bubble
- System costs peaked in Spain in , due to Silicon shortage (global factor) and high demand (national factor), offsetting the effect of exchange rate and strengthening subsequent decline in

20. 7. Conclusions
Regulation was not flexible enough to adapt to market dynamics (even when degression was established, costs dropped higher than FiTs). (Del Rio & Mir Artigues, 2012 and 2014)
Economic crisis played a major role in the diffusion bubble, as the profit rate of the economy was falling dramatically in contrast with security provided by FiTs (capital flight from construction sector and financialization of PV investments) (Prieto & Hill, 2014)
Expectations played also a main role (rush to invest before Degression system and Quotas were established and FiTs lowered)
Grid parity has not been reached yet for Utility segment (2013). Profitability will be above 4% when costs decline by 30%, wholesale electricity price trebles, or if expected escalation rate of electricity prices is above 5% (a combination of the three factors is more likely)

21. Thank you for your attention!

22. 6. Sensitivity analysis 6.1. Diffusion
Between FiTs were compromised to ensure a total retribution of about 46B€* at present value (3% discount) for the next 29 years**
How would the diffusion process had been if the NPV of the total remuneration for PV investors was directly invested and evenly distributed during these 29 years?
+44%
+22%
+9%
Assumptions:
3% discount rate
Constant cost decline towards 1€/W in 2040 (solid lines); no cost decline (dashed lines).
100% investment in large installations (green lines); or small ones (blue lines)
No economies of scale
No admin. Costs
Lyfetime of the system: 25 years
-46%

23. Appendix: Germany:

24. Appendix: Germany: Clear correlation profitability diffusion
Larger scale, stronger correlation and sensitivity
Not only important profitability level, but also relative change with respect to the profit rate of the economy

25. FiT/electricity prices

26. System Cost

27. Profitability

28. Diffusion