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Analyzing the impact of cost-containment mechanisms on the profitability of solar PV plants in Spain

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  • Mir-Artigues, Pere
  • Cerdá, Emilio
  • del Río, Pablo

Abstract

From mid-2007 to September 2008, the Spanish PV sector experienced an investment boom, which led to a ten-fold increase in solar PV deployment. The concern of the government about the large increase in the associated support costs through a feed-in tariff led to the implementation of several cost-containment regulations. These included a cap on the electricity generation being eligible for support, a grid access charge, a generation charge, a shortening of the support period and the updating of tariffs below the consumer price index. The aim of this paper is to analyze the impact of those cost-containment mechanisms on the profitability of solar PV plants in Spain. The results show that these measures have had a moderate impact on the profitability of those plants, which is still relatively high, with internal rates of return which are always above 7% in all the simulated cases. However, their impact is mediated by different features of the plant, including the levels of the initial investment (upfront costs), borrowing and operation and maintenance (O&M) costs. It is also mediated by policy variables (such as changes in the tariff-updating method and the level of the grid-connection charges) and by other variables, e.g., the interest rates of loans. The specific impact of each of the cost-containment measures has also been analyzed. Our findings show that the generation charge has the greatest impact, followed by the change in the tariff-updating mechanism, the generation cap, the shortening of the support period and the grid access charge.

Suggested Citation

  • Mir-Artigues, Pere & Cerdá, Emilio & del Río, Pablo, 2015. "Analyzing the impact of cost-containment mechanisms on the profitability of solar PV plants in Spain," Renewable and Sustainable Energy Reviews, Elsevier, vol. 46(C), pages 166-177.
    • Handle: RePEc:eee:rensus:v:46:y:2015:i:c:p:166-177
    DOI: 10.1016/j.rser.2015.02.005
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    1. Branker, K. & Pathak, M.J.M. & Pearce, J.M., 2011. "A review of solar photovoltaic levelized cost of electricity," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(9), pages 4470-4482.
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    4. Sergio Coronas & Jordi de la Hoz & Àlex Alonso & Helena Martín, 2022. "23 Years of Development of the Solar Power Generation Sector in Spain: A Comprehensive Review of the Period 1998–2020 from a Regulatory Perspective," Energies, MDPI, vol. 15(4), pages 1-53, February.
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