By Alison Ebbage

The Spanish Feed in Tariff (FiT) was a victim of its own success because so much new power came online as a result of its generous pricing that the Spanish government was no longer able to support it withdrew it rather abruptly.

Dr. Luis Crespo, secretary general of Protermosolar comments: “Modifications of the FiT system for CSP plants in December 2012 and February 2013 have already reduced payments by 1/3 and put the plants in difficult situation as regards their project finance debt obligations.”

Meanwhile the new scheme to replace the FiT was introduced in July this year. It pays a 7.5% return on the operational and construction costs- this brings down the cost of those elements but does nothing to encourage cheaper energy production via new technologies.
Jan Von Drathen, head of concentrated solar power fleet at EON comments: “Realistically I think the new rules will mean a 10% tariff cut but they are yet to be finalised.”

He explains that the new scheme applies a 7.5% return only on the project costs. “If the price of the energy sold rises significantly then the 7.5% return is reduced incrementally. Therefore there is no incentive to optimise production costs or improve design or technology,” he says.
Frank (Tex) Wilkins, executive director of the new US Concentrated Solar Power comments: “In Spain they had no way of lowering the subsidy in line with supply and demand. If it had been better managed with limited amount of projects and power permitted then the cost of maintaining it would not have been so prohibitive.”
But Wilkins points out that the Spanish subsidies, although badly managed, were part of a national power plan and were specific to each type of renewable energy.
“Having a national policy did make for a more cohesive energy industry and the structure did provide an incentive to look for new technologies,” he says.
In fact Wilkins’ criticism of the situation in the US, the other major CSP producer, is the lack of an overall policy to support the long-term growth and success of the industry.
“The initial idea behind any incentive is to get a new technology up and running and from then on the reduce production costs and enable a positive contribution to the national grid,” he says.

In the US however there are both State and Federal policies such as standard portfolios, grants and coverage of loan guaranties allowed for power purchase agreements (PPAs) at very low prices in the USA. They have been very good for CSP technologies and allowed a cost reduction learning curve.
For example the recently departed Department of Energy loan scheme was instrumental in facilitating new builds and in turn making the industry much more investible for banks and other sources of funding.

Von Drathen comments: “PPAs are individually negotiated and therefore push for quicker innovations in shorter steps because the incentive is there to produce energy at a lower cost in order to be able to negotiate and find a buyer.”

Indeed, the PPA scheme is very much cost driven. State authorities set targets for renewables as a whole, thus making them compete with each other largely on price. Effectively this makes life difficult for CSP because it is seen as a more expensive option than PV. However the value of CSP’s storage ability is increasingly being recognised by utilities companies and both the cost and the value of CSP compared to fossil fuels is being analysed by the industry.

Von Drathen comments: “Storage is enhancing returns as with CSP the amount of working hours on the power block can be extended. However this only works if there is a subsidy – a baseload price means that the returns from CSP are insufficient.”

Rest of the world

Newer CSP producers such as Morocco and India have chosen the PPA model too. And it remains to be see how the Saudi government will choose to subsidise what it hopes will be a significant CSP industry to provide domestic power.

Crespo comments: “Countries with less CSP experience certainly profit from their forefather’s experience of building up reliable plants because banks are now more comfortable with financing new plants. They will also be able to better match the PPA price with the technology situation.”

And Von Drathen adds: “The quantum leap is necessary to compete with PV. PV is so much more popular because there are so many more people working on it in R&D and investing. This means that an optimal power mix of PV, onshore wind, and gas will be dominant. Meanwhile the CSP dispatchability is good but currently too expensive and this needs to change,” he says.