What’s happening with renewable energy on El Hierro is enough to raise eyebrows on a couple of counts.
First, there’s the fact that the island, in the Canary Islands, Spain, is set to cover 80% of its energy needs with a combination of wind power and pumped hydro.
The plan is to use this as a stepping stone to 100% renewable energy coverage, adding battery storage from electric cars into the mix. That’s a serious step. Islanders are rightly proud of having got this far.
But what’s perhaps just as interesting to those of us in the renewable energy sector is the funding structure behind El Hierro’s renewable venture. Gorona del Viento, as the project developer is called, is 60% owned by the island council.
Endesa, the local utility, has a further 30% stake. And the Canary Islands Technology Institute owns 10%. That’s it. No venture capital. No institutional investors. No banks. No funds. How come? It's all down to the business case.
The price of electricity in El Hierro (as in the rest of Spain) is fixed by law, but the cost of producing it through traditional means (in this case, diesel generation) is high. And the island’s 10,100-strong population uses barely more than half of the power produced. The rest is needed to desalinate water and pump it across the island’s mountainous terrain for irrigation. That’s a big cost to the council.
Therefore, it makes sense for the government to invest in a project that will greatly reduce the expense. Endesa stands to win as well. By taking a stake in Gorona del Viento, it secures its place in El Hierro’s energy future and gets to pocket a share of the generation savings that will arise.
All parties also hope to benefit from exporting the Gorona del Viento concept to other markets. Talks are already underway not just with other Canary Island councils but also representatives of island chains such as the Azores and even nations such as Indonesia.
That’s all well and good. But what’s the opportunity here for the private sector?
Well, let’s step back a bit and consider the wider Spanish market. ‘Paralysed’ would not be an overstatement. Only one turbine has been installed across the whole country in the last six months. The government is determined not to shell out cash to support renewables.
So that means project developers have to find opportunities where wind energy makes sense without subsidies. Gorona del Viento is a clear example of this. And such a concept doesn’t have to be government-backed.
In fact, there could be significant attractions in the private sector planning, developing and operating such projects on a turnkey basis. Gorona del Viento, as it happens, is a fully commercial enterprise despite its public-sector ownership.
As subsidy support falls away in a growing number of markets, developers are going to have to pay increasing heed to such opportunities. In places such as Spain, they are now about all there is to go on.
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