Wind energy – EU and Spain
The Spanish Government has introduced a new charge on wind farms and other non-polluting power plants to compensate for the higher revenue they say they’re earning as a result of higher wholesale electricity prices.
They argue that high gas prices have driven up electricity prices, that wind farms don’t have to buy gas so they’re earning windfall profits.
This argument assumes that wind farms sell electricity at today’s so-called spot prices in the wholesale electricity market.
In practice, they don’t. A lot of what they sell is sold at pre-agreed prices in fixed-term contracts. Wind farms – and power utilities more broadly – hedge against low and high prices and forego the upside if high spot prices.
The new measure imposes charges of €40-80/MWh. A wind farm with fixed long-term revenues of €35/MWh will now lose money on every MWh they produce.
Those thinking of investing in new wind farms in Spain will now face lower revenues and, worse, increased uncertainty about future revenues given the Government’s willingness to intervene in the market.
The Spanish government says the measure is not inconsistent with EU law. They say it won’t affect market electricity prices. That’s questionable – such a large reduction of income will inevitably affect market behaviour. The charges will also result in power producers to bidding into the market at prices unrelated to costs, which goes against the EU Electricity Regulation and Directive. More broadly, state intervention of this nature goes against the principle of predictability and the informal legal framework that is central to EU energy markets.