June 9, 2008 / 11:59 AM / 10 years ago

Oil makes wind power competitive: Spanish utilities

MADRID (Reuters) - Soaring oil prices have made wind power more competitive but Spanish government subsidies will be needed for some time to allow the industry to meet ambitious growth plans, generators said on Monday.

Power-generating windmill turbines form a wind farm on Backbone Mountain near Thomas, West Virginia August 28, 2006. REUTERS/Jonathan Ernst

Spain has about 16,000 megawatts of installed wind power capacity, making it the world’s third-largest producer, after Germany and the United States.

Spanish government plans call for that capacity to expand to 20,000 MW by 2010, and the industry is eyeing 40,000 MW by 2020, in order to comply with European Union objectives to obtain 20 percent of all energy from renewable sources.

Xabier Viteri, chairman of the renewables IBR.MC arm of Spain’s biggest utility, Iberdrola (IBE.MC), said the industry would need the government to maintain so-called “feed-in tariffs” in the medium term.

“We face a market of gigantic dimensions, so all players will have to meet an unprecedented challenge to boost competitiveness,” Viteri told a wind power convention.

Viterbi said the cost of electricity generated by wind turbines was 80-85 euros ($126.4-134.3) per megawatt-hour, compared to 80 euros/MWh for gas-powered generators and 85 euros/MWh for oil-fired turbines.

Wholesale power prices in Spain’s deregulated market, where just 25 percent of electricity may be traded, stand at around 55 euros/MWh for prompt delivery, and 65 euros/MWh for delivery in 2009.

Fernando Ferrando, general director of renewables at utility Endesa (ELE.MC), estimated premiums paid to Spanish wind power producers in the year to May were 24 euros/MWh.

Combined-cycle gas plants provide about 35 percent of Spanish electricity, and wind power some 10 percent.

BARRIERS TO EXPANSION

Ferrando said one of the barriers to expanding production was national grid operator REE’S (REE.MC) cap of 30 percent on wind power’s share of electricity demand, to prevent the system from being vulnerable to sudden drops in wind speed.

“If we expand to 40,000 MW and still have the 30-percent cap, wind parks will have to stand idle for long periods of time, about 300 hours (a year),” he said.

REE had to impose the 30-percent cap on a windy day in March when wind turbines momentarily accounted for a record 28-percent of output.

Other barriers to expanding wind power cited by generators were the high cost of connecting dispersed and isolated generators to the grid, and the lack of availability of wind turbines.

REE chairman Luis Atienza said Spain needed more interconnection capacity with France to offset sudden drops in output by wind parks, as well as greater gas storage capacity, so gas-powered plants could fill gaps in output.

Spain can currently import just 3 percent of its electricity from France, but hopes to reach a deal this month to build new power lines across the Pyrenees.

Reporting by Martin Roberts; Editing by James Jukwey

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