The technology leadership currently held by Europeans for STE is to defend not only for the benefit of Europeans but also understood as the firm European contribution to achieve a more sustainable development for all countries for the world. This implies already today a strong collaboration with many other countries endeavouring together to blend their respective assets for a common goal.

• In this context, one of the five priorities of the European Commission was defined in May 2014 by J. C. Juncker:

“We need to strengthen the share of renewable energies on our continent. This is not only a matter of a responsible climate change policy. It is, at the same time, an industrial policy imperative if we still want to have affordable energy at our disposal in the medium term. I therefore want Europe’s Energy Union to become the world number one in renewable energies.”

• The same was later included among the key actions of the commission elected in November 2014:

“An ambitious climate policy is integral to creating the Energy Union. Actions include the EU Emissions Trading System (EU ETS), strong but fair national targets for sectors outside the ETS to cut greenhouse gas emissions, a roadmap towards low-emission mobility and an energy policy which makes the EU world leader in renewables”.

Being a (market) leader implies meeting at least one of the following conditions:

• having an earlier penetration on the relevant market, i.e. having been the first to enter the market;
• having been the first to adopt a strategy for market penetration (where, when, preparedness for a triggering event, etc.);
• having more financial, technological and commercial resources than competitors, even it was not the first to enter the market.

Technology leading companies must constantly monitor their environment so to defend their leadership (unless they happen to act in a legal monopoly position, which is not likely to be the case any longer). To do this, companies can opt for 2 strategies:

• have patents or trade secrets that duly protect a product or product design against imitation, especially based on sustainable international legal framework on competition.
• increasing primary demand: either seeking for new consumers (strategy of market expansion or geographical extension or segment) or proposing new uses for products or making more consumers consume the product. This means also defending market shares. In order to stay at the forefront of innovation, companies must improve their margins by acting on the quality / price ratio or be able to adopt an adapted “political” packaging.

STE is the only one or among the few technology sectors where European companies hold technology leadership due to a STE deployment program launched in Spain back in 2004.

This deployment initiative taken by the Spanish government led to the construction of some 50 STE power plants in Spain – a wise political decision that indeed fulfilled at that time the conditions for achieving leadership in a new renewable energy technology.

Spain and the other countries such as Germany, Italy, Denmark, France, etc. that participated in this wise STE deployment program since 2007 as developers and suppliers have built up not just excellency in solar research, but also an entire STE industry representing the whole value chain.

Today, the STE sector differs fundamentally from solar PV especially in the sense that there is no STE power plant built today in the world that does not use technologies developed by Europeans or where European entities are encouraging innovation.

Amid the global competition for technologies and markets, this is not a minor aspect, and Europe should indeed be interested in defending this position.

The STE must expand (first in a EU “home market” and also on world markets) before the new entrants overrun European industries.

How quick and how large energy markets develop in EU (or in any other market of the world) depends on:

• Coherent energy policy programmes and smart support instruments
• Energy cooperation across borders and continents
• Fair sharing the investment risks for 1st-movers
• Optimized efficient financing instruments

The idea that European STE technology can be defended without giving to the technology immediate local applications is much of an illusion: R&D (should) follow market needs /technology leadership cannot be engineered in labs without corresponding markets. This is especially true for STE taking into consideration the crucial objective of cost reduction, for which incremental innovations will be easier to introduce to STE markets without further negative impact on costs.

Finally, the STE success story that started for Europe in Spain (due to the optimal solar resources of the country and the shared vision of both right (2004) and left (2007) wing political parties) was put at threat by retroactive changes of the legal framework about renewables from 2012 on.

Solar Thermal Electricity (STE), also known as Concentrating/Concentrated Solar Power (CSP), is a technology that produces heat by using mirrors to concentrate sunlight into a linear or central receiver, which brings the solar energy to a heat transfer fluid. This heat can be stored for hours or used right away to generate electricity – usually with a steam turbine – or as process heat for industrial application.

Solar thermal electricity generated from plants with thermal storage system deliver firm electricity on demand without additional cost – even after sunset.

STE is grid-friendly not only due to thermal energy storage, but also due to the mechanical inertia provided to the grid by conventional turbines, since solar thermal power plants produce solar thermal electricity in a similar way to conventional power stations – based on absolutely reliable technology.

Five main elements are required: a concentrator, a receiver, a heat transfer fluid, a storage system, and power conversion block. Many different types of systems are possible, including combinations with other renewable and non-renewable technologies. So far, plants with both solar output and some gas or biomass co-firing have been favoured in the US, North Africa and Spain. Hybrid plants help produce a reliable peak-load supply, even on less sunny days.

While substantial STE investments occur on world markets using EU technology and combining advantages of all RES technologies case-by-case in response to local needs, EU stopped investing in STE.

• Due to regrettable political decisions, market failure for accessing attractive risk finance and adverse general conditions (including policy and regulatory uncertainty in the aftermath of the 2008 financial crisis in Europe), no new plants have been built in Europe since 2013, whereas more than 20 have been built or approved in third countries – still with participation of EU companies and in all cases using European technology.
• More concretely, policy-makers were discarding CSP because of the apparent cost difference generated by the mass deployment of PV especially in Germany, the overcapacities in the power markets in many European countries and the substantial restrictions in Italy for constructing large plants.
• Meanwhile, international competitors are dramatically stepping up technology and deployment efforts in their respective home markets. Deprived from a home market, EU companies will no longer be able to offer references on technology advances when competing for contracts.
• The business cases of European companies, which invested in Spain, have been dramatically damaged by the retroactive measures on their plants. The changes in the regulation even prevent the owners to introduce innovations on the operating plants.
• European and international investors’ confidence has been severely damaged by European policies from 2012 on and;
• innovative cooperation mechanisms made available in the 2009 RES Directive left so far unused by Member States.

This led to a situation where – just as for any other energy technology – the STE sector in Europe is today depending on a political commitment by some countries to create the necessary boundary conditions (i.e. legislative and financing instruments) for achieving the agreed targets. This will also provide again sufficient confidence to investors for taking higher entrepreneurial risks in Europe.

The measures were in detail:

• RDL 1614/2010 (Dec) All the plants were obliged to choose the fixed tariff option on the first operation year. This was worth 120 million €.
• RDL 2/2012 (March) Tax reform reducing the discount of financial costs on the
  profits before taxes. The impact was 50 basic points on the profits after taxes.

Followed in 2012 and 2013 by

• Law 15/2012 (Dec). 7% new tax and abolition of premium for the electricity produced from natural gas. A share of 15% of electricity out of gas was previously officially established by R.D. 661/2007.
• RDL 2/2013 (Feb). Abolition of the choice “pool price + premium”. This represented around 13% income reduction. Change of the updating index. This has an impact of 2% income reduction.

The impact of these retrospective measures on the Cash Flow and Debt Service of the projects was from last December to February 2013 already a 37% income reduction that was simply impossible to be covered by the projects.

• The average Debt Service Ratio of the “Project Financing” contracts was usually over 1.30. The cash flow of the Solar Thermal power plants has been dramatically affected by the above commented measures. The current DSR of most plants are below 1.0.
• There were difficult negotiations between the owners of the plants and the banks in order to find specific solutions for each case.
• New repayment schedules with longer tenors were usually not enough. Increasing the equity was requested, but shareholders were not prepared to provide additional funds for a non-profitable business any longer.

Main financial figures of the STE sector in Spain

• There are today 2300 MW connected to the grid corresponding to 50 plants
• Most of the plants (95%) are parabolic trough type 50 MW each. 40%
   are provided with large storage capacity (7.5 hours)
• Roughly speaking the total investment of the global STE deployment in Spain
   amounted to 14000 million €.
• Regarding Equity, 65% is Spanish while 35% is worldwide owned (Europe, USA,
  Japan, Arab Emirates, etc.)   
• The average leverage of the first 40 plants was 80% while most of the latest ones have been built without the typical project finance scheme.

The reality behind the Spanish Electric Deficit

• Renewable energy sources (RES) are often blamed as responsible for the electrical deficit in Spain which is absolutely false. This has been the focus of an aggressive campaign by the utilities to protect themselves from the big mistake of building close to 30,000 MW of subsidized Combine Cycles in the last years.
• The deficit until 2008 was the difference between the total costs and income of the electrical system. Since 2008 is the difference between the regulated costs and the corresponding income as the generation costs are entirely transferred to the bill. In 2008 the deficit amounted to around 15,000 million € when the deployment of RES was not significant.
• the premiums to RES represented at that time 1/3 of the total regulated costs, but they have been subject to the largest reductions with the last retrospective legal measures.
• The reason for the deficit is the hesitation of the Spanish Governments since 2004 – to establishing the necessary tariff to cover the total costs of the whole electrical system.
• The fiction of delaying the payments for the incurred costs implies currently an amount over 2 Bn€ per year as financing costs. As this has been caused by the political decision of “no tariff increase” it should be taken by the public budget rather than by the electricity consumers. The accumulated impact of this political decision is a significant part of the current 23,Bn  € deficit.
• There are some items in the regulated costs that shouldn’t be charged to the consumers of electricity:
  • The compensation in the extra-peninsula territories for having the same electricity cost than in the main land. That amounts to 1800 million € per year.
  • The “interruption costs” received by some big electricity consumers for accepting to be disconnected in case of power deficits. This was reasonable until 2005 –although it was seldom the case – but it currently became a kind of subsidy to these companies, due to a large surplus of capacity. Such lower electricity prices allowed them to remain in Spain. This amounts to 750 M€ per year.
• Although RES received between 5 to 6 Bn € per year during the last years, they contributed to reduce the pool price of the kWh. Their accumulated effect since the beginning of the Special Regime system was a net saving of around 9 Bn € for electricity consumers.
• Premiums received by STE plants represented around 3% of the total premiums received by all the technologies of the Special Regime (cogeneration, renewable, and others) until now. STE ranked 4 in the premiums after PV, Wind, and Cogeneration (CHP). However, STE plants have been dramatically and discriminatory affected by the last regulations.
• Transport and specially distribution are the main part of the regulated costs amounting to around 40%. The EBITDA of the distribution business of the utilities has been very high during the last 10 years when the electrical deficit has been generated. There is more room in this item than in RES to reduce the deficit.
• Payments at pool price of Nuclear and Hydro generation has resulted in enormous windfall profits during the last 10 years. Establishing a tariff with a reasonable profit for these technologies could provide savings of around 1,5 Bn € per year.

The retroactive measures taken against STE plants by the Spanish government in 2012 – 2013 and consolidated in 2014 resulting in a massive change of the remuneration scheme for RES power plants have now been unanimously condemned by ICSID, the International Center for the Settlement of Investment Disputes. Among the 26 arbitration claims against these changes filed at the ICSID by several RES industries, the case of the STE industry (20 claims) stands out since these measures brought the deployment of STE to a stop in Europe and still negatively impact the business development of European companies holding worldwide technology leadership in STE technology.

Well known is that right after the STE plants were built, the revenue streams of plant operators were suddenly cut by a third(!).

Less known is that ahead of these cuts, the solar thermal sector had reached an official agreement with the Spanish government so as to keep a stable remuneration for previously constructed or awarded plants. By this agreement, the STE sector accepted delaying both the operation start of the plants and the remuneration regime “pool + premium” by one year compared to the initially authorized schedule. This resulted in savings for the Spanish system of around 1.4 billion € already between 2011 and 2013. While the STE sector scrupulously fulfilled its commitments (and effectively refrained from a 1.4 billion € income), the Spanish government did not comply with its obligations.

The main argument used by the Spanish government to defend the changes was that “entrepreneurs should have known that laws can be changed”.  Indeed, all entrepreneurs knew and still know it, but the ICSID now arbitrated that such massive sudden changes of agreed rules may not occur in whatever way. The Spanish Ministry recently said in a press release regarding the arbitration award of ICSID that each arbitration is “different”. No doubt about that. However, the common denominator of further arbitration awards about the solar thermal sector (with still some 20 pending cases) will lie now in two undisputable facts: a) the abrupt retroactivity of the measures taken and b) the obvious breach by the Spanish government of an agreement with an industry sector. In addition, the assessment of the damages performed in this first ICSID sentence shows that the current remuneration scheme that was set to provide a “reasonable profitability” on investments of 7.4% is a fiction that even the experts presented by the Ministry recognized.  

The Spanish government might now take this arbitration award as a good opportunity to consider whether it makes sense to wait for an expected “string” of negative awards due to the fact that most of the still-pending cases are from the STE sector or to be proactive and negotiate with both international investors and the STE industry an acceptable settlement solution.

Recent reports in major Spanish media mention that the Spanish Ministry is now likely to lobby the EU institutions for avoiding the payment of the ICSID sentence (128 M€) via a) declaring its own RE support schemes as a breach to EU State-Aid rules and b) stating that the Energy Treaty Chart would not apply within EU Member States. Furthermore, ESTELA also observes obvious hesitations from the Spanish Ministry of Energy to support and even spearhead a “STE initiative for Europe” worked out with the SET-Plan framework aiming at defending the STE technology leadership position held by companies in about 10 EU Member States – amid fears that non-European competitors might easily take advantage of a longer STE investment stop in Europe.

A political commitment (via e.g. a political declaration by several MS backed by the EU services or under the SET-Plan) to enhance cooperation on concentrated solar thermal technologies for power generation, heating, including for industrial purposes, solar chemistry and desalination.

Such a declaration should be actively promoted especially (but of course not exclusively) among those Member States having a direct stake in the sector.

In Europe, the combined effects of:

• “modest” 27% RES targets for 2030 without binding national targets
• energy efficiency policies
• a structural growth/demand stagnation
• the generation overcapacities and existing de facto stranded investments
• The resistance to decommissioning old coal and nuclear plants in many countries
• the conventional industry lobbying (shale, “gas to power”, etc.)

Last, but not least, the unbalanced ratio between manageable and intermittent resources will trigger alarming effects.

The main reason is that a deployment of variable generation sources up to a level beyond approximatively 30 % already tables the issue of sustainability of the energy transition itself. Variable generation sources will inject into the grid energy at the same time without a corresponding market demand. This results in:

• Less or no more business cases for any RES investment because investing in cheap variable generation without value for the system wuill stop and with it the need for the higher value of manageable generation that can well be replaced by conventional capacities;
• Severe drop on employment in the “green economy”
• Abrupt energy price peaks for manageable energy whenever demand rebounds, since there will be not enough capacities for balancing the system
• Jeopardizing the decarbonisation objective for 2050
• Aggressive take-over actions on European technology holders (“PV syndrom”!)
• Citizens will suffer a still carbonized environment and ultimately pay for a wrong strategy

Prior to assessing the “business as usual” vectors of any energy policy discussion in Europe, namely:

• evaluating the current potential deployment of STE in the European internal electricity market at various time horizons (5/10/15… years);
• supporting innovation in the sector;
• assessing whether the recently launched Clean Energy Package proposals of the EC services will support or rather inhibit such a deployment;
• pointing at flawed comparisons between technologies that do not provide the same product.

It is urgent to assess the implications of further delayed or withheld action for the sector in terms of:

• industry policy incl. fair competition conditions inside and outside Europe, and its impacts on employment
• technology leadership including excellence in research and innovation,
• attractiveness for investors and IFIs (that will dramatically impact the costs of the technology)
• sustainability of the energy transition in Europe as a whole.

Policy makers are the only mandated forces in charge of energy policy choices taking into account all their implications.

Policy-makers should embrace in their strategy the 3 dimensions of the energy transition:

• business (cost/return ratio) which underpins concepts such as “affordability”, “LCOE”, “competitiveness” that should be relevant essentially to banks – but much less to political leaders in charge of energy strategy,
• macro-economic (GDP metrics, up into “social welfare” understood as the well-being of the entire society, including the increase of GDP, jobs, quality of life, quality of the environment (air, soil, water), availability of essential social services, even religious and spiritual aspects of life. This should be essential to any government policy.
• political: if the a.m. macro-economic dimensions are properly reflected against a pure cost approach, the issue of energy transition becomes an efficient instrument to policy makers for binding voters especially in urban areas or environmentally and/or economically stressed regions of Europe.

Let’s take an example:

• In Portugal, the useful lifetime of 2 coal power plants comes in 4 or 5 years at the most to an end; 30% of all electricity produced will, in theory, go away with their demise; with what will they be replaced? coal again? natural gas?
• This is a typical situation bringing a clear opportunity to perform a major leap towards energy transition embracing all complementary renewable resources, bridging decentralized and centralized production; in such a case STE with storage has a very important role to play – not only for the benefit of Portugal!
  • Companies from all over Europe would be called upon to contribute;
  • Such a decision in a country coming closer to 100% generation capacity in RES (Portugal already has more than 50% capacities in hydro and wind that would be able to further increase backed by STE and in this scenario) could become a milestone and also a demonstration for other European countries about how to achieve the 100% carbon-free power system.
  • While competing for investments decisions in new plants (new conventional plants substituting for old ones), the STE plants with storage become much more competitive since the current old conventional plants produce electricity only at fuel cost, since their respective investment costs are “considered” as already amortized …
  • In fact this situation – described here as for Portugal and coal plants – is valid when taking into account the existing or still needed interconnections between countries considering for Europe as a whole with its old nuclear plants: these produce at “apparent” cheap costs (the costs for various environmental damages, dismantling, waste processing and disposal are not included in LCOEs figures), but new nuclear plants require very high investments against which STE can already compete!

It is indeed a matter of urgency to debunk the erroneous perception in many national authorities, ministries, regulators, European institutions’ services that the potential benefits of a relaunch of this sector would be limited to those European countries where STE power plants were already built and/or having very good solar resources (Portugal, Spain, Italy, Greece).

The reality is very different: as true it is that the main European STE promoters in Europe as of 2016 are based in Spain (such as ACS Cobra, Acciona, Abengoa, Sener, TSK, Elecnor, etc.), this is just the most obvious outcome of the STE deployment program launched in Spain in 2007-2013. But the industry texture of the STE sector is sub-stantially wider.

There are at least 9 Member States with companies holding references in STE technology:

The current developers of STE plants do best efforts on all active markets to aggregate companies from other European countries via joint ventures, alliances and EPC contracts. Even if the following list of companies is not exhaustive, entities such as in Denmark (Aalborg), in the Netherlands (NEM), in Belgium (CMI, Enseval-Moret), in Italy (Ansaldo, Archimede, ENEL Green Power, Turboden, CCI-Orton), in Germany (Siemens, MAN, BASF, Schlaich Bergermann, Flaveg), in the Czech Republic (DOOSAN Sköda Power), in France (GE(former Alstom), ENGIE, Saint-Gobain, CNIM, etc.), in Portugal (EDP Inovacao) can be mentioned.

Besides supplies and services that are normally provided at least cost by local companies of the country where a plant is built (civil works, assembling on site, non-specific auxiliary services) there is a widespread distribution of STE competences and business potential for companies across at least 9 EU member States.

These companies hold references in STE technology, based for a substantial part on own R&D and are able to successfully compete on global STE markets – if politically supported by fair competition conditions and based in an own home (means in this case: European) market.

STE/CSP Power Plants Around the World

The most striking element that makes Morocco stand out among all STE deploying countries is the quality of the policy and institutional framework elaborated there to achieve 2 targets:

• the country’s independence from fossil energy imports and most importantly
• setting up a new industrial hub for solar technologies for the rest of Africa

A decisive move was the creation of MASEN (Morocco)

• Masen is a multi-stakeholder in the NOOR projects.  It is the procurer of the IPPs, the off-taker of the electricity, the senior lender and, through its subsidiary, Masen Capital, a 25% shareholder in each project company and in each O&M company.  Masen also provides the site and associated infrastructure and services.  
• The reason for the many roles of Masen is not just to achieve best value for money for the Moroccan public, but also to ensure that Morocco benefits in the long term from the knowledge and skills developed through the construction and operation of the NOOR projects, protecting and advancing Moroccan interest in the projects and in the solar energy industry in general.
• With 20 shortlisted bidders for NOOR PV I, three CSP projects with an aggregate capacity of over 400 MW under construction, and procurement for the next solar complex – NOOR Midelt – underway, Morocco, and Masen, can rightfully be considered a leading player in the solar energy business.  The interesting question is whether other countries in the MENA region can replicate this success.

The NOOR STE projects have achieved very competitive tariffs, among others due to the project structure adopted by Masen. 

• For these projects, Masen has taken on the role of lender, raising the debt financing itself, from a group of International Finance Institutions (IFIs), including AfDB, the Clean Technology Fund, EIB, IBRD, and KfW.  The IFIs benefit from a guarantee granted by the Kingdom of Morocco.  Masen acts as sole-lender to the project companies, packaging this debt and on-lending it on preferential terms.  As a government-owned entity, Masen is able to achieve far better pricing than a special purpose project company.  The cost of debt is therefore significantly lower than would otherwise be the case, and is estimated by Masen to result in a reduction of approximately 30% of the price per kWh 

All this produced within few years impressive results, with last but not least much better financing conditions offered by a very wide range of major international financial institutions for the implementation of Moroccan Solar Plan that the ones any EU country would be granted!

The first of the NOOR Ouarzazate STE projects and the first stage of Morocco’s Solar Plan, NOOR I (150 MW parabolic trough project with 3 hours of energy storage), is connected to the grid since end 2015.  

The second phase of the Solar Plan comprised two CSP projects procured concurrently:

• NOOR II (a 200 MW parabolic trough project with 7 hours of energy storage); and
• NOOR III (a 150 MW tower project with 7 hours of energy storage). 
• These reached financial close in May 2015 and are currently under construction.  First operation is expected in 2017.

And a further 250 MW will be added to Moroccan’s energy system next year. Most important feature of the decision-making process in Morocco is the fact that the solar generation shall be balanced up to a considerable amount of STE recognizing by that the complementarity between both solar technologies.

The Middle East is ramping up its plans for STE based projects and as a part of the Plan, Shams-I has been installed in Abu Dhabi. There are ambitious plans in Saudi Arabia and in several Arab Emirates. Currently 4 STE plants having 300 MW capacity are running successfully in South Africa and another half is on the way.

More recently, the Dubai authorities have outlined a three-year construction window for a 200 MW solar tower facility, the United Arab Emirates’ second CSP plant. The Dubai Electricity and Water Authority (DEWA) is to award the contract for the project in the second half of 2017 and expects the facility to be online by April 2021. DEWA announced on 4 June the prices offered from four consortia for the 200-MW fourth phase of the Mohammed bin Rashid Al Maktoum solar park. The lowest bid for the Solar Thermal Electricity (STE) project came in at 9.45 US cents/kWh (approx. 8.4 €cts/kWh). Participating consortia were [ACWA Power (Saudi Arabia), Shanghai Electric (China), BrightSource (USA)]; [Alfanar (Saudi Arabia), Suncan (China)]; [Engie (France), SolarReserve (USA), Power China (China), Sepco3 (China)] and [Masdar (UAE), EDF (France), Abengoa (Spain), Harbin Electric (China)].

Three of the best bids offered by multi-national players are hitting or even below 10 €cts/kWh while the installed capacity in STE worldwide is just around 5 GW compared to nearly 500 GW for wind and 300 GW for PV. In other words, STE costs were divided by 3 in just 10 years (2007-2017) with just 1% of the market volume for wind and less than 2 % of the market volume of PV!

On 16 Sept, DEWA announced that the contract is awarded to a consortium comprising Saudi Arabia’s ACWA Power and China’s Shanghai Electric. The consortium bid the lowest LCOE of USD 7.3 cents per kilowatt hour (kW/h). The project will have the world’s tallest solar tower, measuring 260 metres. The power purchase agreement and the financial close are due to be finished shortly. The project will be commissioned in stages, starting from Q4 of 2020.

This comes already after SolarReserve offered 6.54 US cts/kWh in Chile in August 2016 for a STE 120-MW plant, where in addition to the best solar resource in the world, the country’s stable financial status along with US dollar denominated power contracts results in excellent financing and investment terms.