Spanish Renewable Energy Investments Slow with U.S. Regulatory Changes

Renewable energy investments in the U.S. had a bumper year in 2012, and Spanish wind investors, like Iberdrola Renewables, have plenty to show for it.

According to Iberdrola Renewables' Communications Manager Paul Copleman, in 2012 the company wrapped up completion of several wind installations in a half-dozen states. Its successful construction of wind farms in Massachusetts, New Hampshire and California lent support to the American Wind Energy Associations recent claim that the number of wind energy investments trumped those of gas in 2012.

“It was a good year for us and a good year for the industry as a whole in terms of the number of installations,” Copleman said during an interview last week.

Iberdrola Renewables is one of several Spanish renewable energy companies that have invested in the U.S. market, trading in part, on its demonstrated success as wind and solar  energy leaders in the Spain and other parts of the European Union. Iberdrola Renewables is a subsidiary of Iberdrola S.A.

Copleman pointed out that much of the success of wind energy companies last year was due to a shift (see page 5 of gov't. report) in the way that tax credits could be accessed by investors. The federal Production Tax Credit, which had been touted as a support for operating wind farms, lost its appeal during the 2008 recession. It worked great for small wind farms that were already in production, but did little for investors like IR, which were not yet at production stage and were stymied by the economic conditions created in 2008.

“The primary federal incentive to the wind industry was gone,” Copleman said.

The American Recovery and Reinvestment Act Section 1603 helped correct this problem, by converting the production tax credit into a reimbursement program that renewable energy investors could take advantage of. As a result, companies like Ibendrola Renewables and Abengoa, known for its solar production and based out of Sevilla, Spain, were attracted to the U.S. markets. Spanish wind and solar companies were able to access the provisions of 1603 in 2012, but it was wind energy investors like Iberdrola Renewables, which now has installations in 19 U.S. states, that truly benefited from the change.

But as with any federal tax incentive program, the boom was eventually due to end. Section 1603 provisions ended for wind energy investments at the close of 2012, and access to the program for solar is due to end in 2013. Both industries have already started scaling back investments, mindful of the need for careful planning.

“Given some of these challenges in the energy market, we’ve already indicated that our ability to develop in 2013 will be pretty selective and opportunistic,” Copleman explained.

Abengoa could not be reached for comment, but according to its report on its U.S. operations, 18 percent of its investments are in the U.S., roughly equal to all of its projects in the European Union, excluding domestic investments in Spain. It is currently finishing construction on two solar plants in the U.S. The Solana solar plant in Arizona has been touted as the world’s largest plant of its kind in the world. Abengoa states that approximately 3,000 U.S. jobs will be produced as a result of its plants in Arizona and California.

Most of Abengoa’s U.S. investments are in biofuels at this time. Six plants are spread across the eastern and mid U.S., equaling roughly $500 million in investments. But its 2012 Presentation report suggests that it has scaled back   some of its plans for North America investments as well, turning its attention instead, toward other profitable regions, such as Latin America and Europe.

Copleman pointed out that while the production tax credit is still in force, the loss of tax incentives like 1603 and the economic confidence that comes from a stable investment policy doesn’t just impact companies that want to invest in renewable energy in the U.S. It affects local businesses as well.

“(If) you look at the last few years … where you had some amount of policy certainty there was a roughly three or four year stretch where there was no danger of a tax credit expiring, or the rules changing dramatically for the players, what you saw was a tremendous expansion of the industry, and a tremendous investment in the U.S. supply chain.”

He used the production of the wind turbine – a key player in wind energy – as an example.

“(A) wind turbine (is a) complex piece of machinery with about eight thousand parts in it. Five or six years ago, only 25 percent of those parts in any one turbine were made in the United States.”

Today, approximately two-thirds of the turbine’s parts are manufactured in the U.S., said Copleman.

“You have over 400 (local) factories that support this industry. And that comes about in part when you are able to have a certain amount of policy certainty.

“So to go back to a state of one- or two-year tax credit extension or questions about what the future holds once the production tax credit expires potentially again at the end of this year, means that the investments aren’t going to flow to this part of the world with those questions, and that policy uncertainty.”

No recent wind installation better exemplifies this point than Iberdrola’s recently completed Blue Creek wind farm.

“(That) was the largest investment in the state of Ohio in 2011, when we started construction on the project,” Copleman explained.  “And it is going to pay about $2 million in lease payments to the local land owners where the wind turbines are located, it’s going to pay $2.7 million in annual payments to the local taxing bodies, the towns and the counties, it peaked at over 500 jobs in construction and we worked with over 30 different Ohio companies from everything to fencing and site security to equipment rental to concrete.”

It’s also going to save Ohio State University more than $1 million in electricity bills, proving that renewable energy ventures, and the tax incentives that help make it possible for investors to break ground on new projects, are a proven ingredient in bringing green energy to U.S. communities.

Still, Copleman says that the company remains focused on U.S. markets.

“(We) have a positive view of the long-term market. There is a great wind resource in many parts of the (U.S.), the technology is continually improving and bringing down costs … Whether (it) is a wind farm itself, or a factory that is part of (its) supply chain, we see communities that want this.”

Image of U.S. wind turbines courtesy of Iberdrola Renewables.

Image of biogas plant courtesy of Abengoa.