Navigating Change: Energy Transition in Iberia

We are delighted to welcome in this episode Álvaro de Simón, Founder and Managing Director of ASB Renewables.
 
 Over the last decade, renewable energy has evolved from a niche sector into one of the world’s most competitive investment arenas. Yet success today is no longer simply about finding good wind or solar resources. It is about understanding regulation, market design, storage, corporate procurement, and where capital can find the right balance between risk and opportunity.
 
 Álvaro has advised investors, developers, and industrial players across Europe and emerging markets, helping them navigate market entry, transactions, PPAs, and growth strategies.
 
 In this conversation, we will explore where renewable investment is heading next, what markets are becoming increasingly attractive, and how companies can position themselves for the next phase of the energy transition. 

Transcript

SPEAKER_00 0:07

Welcome to AFF Winds of Change, the show that takes you behind the plane. Let's host the find Sopharia Explore the Evolving Wind Energy Landscape With decades of experience in management supervision and quality assurance it leads and time for discussions on the changes shaping our industry. We invite you to listen learn and join the conversation.

SPEAKER_03 0:49

Hi guys, welcome back to AFF Winds of Change, our podcast, the AFF Wind Services. As you have noticed, we are starting to pick up the cadence here again of being more regularly, like with promised last year that we would be. We keep on finding very exciting conversations and innovative conversations as well, mainly within the renewable market. That's why we operate, as everyone knows. We work more onshore with the wind. Today we're going to talk a little bit more into the renewable market itself, so also into solar. The person that we've invited for today's podcast, he's deeply involved with solar, with storage, with other aspects of the renewable. If you follow this market in this industry, you're realizing that it's not a niche market anymore, it's not a small market anymore, it's growing and growing. And with its growth, there is more, there's different aspects that come with it. So when we talk about storage, solar, there is also compliance, grid compliance, grid capacity as well. So there's a lot of aspects and a lot of things that need to be looked into, that needs to be developed and designed also as part of the whole process. Therefore, today we have Alvaro. Alvaro has been working quite some time now, decades within the industry. He's been very successful with supporting and sharing knowledge to other companies, investors, developers, other players within Europe and other markets that are growing and emerging. Very much excited to talk with Alvaro, explore this growth and this market that is becoming more and more of a need, especially nowadays. We are seeing the changes in the climate, we are seeing the impact in the changes of the climate. Therefore, we need to do something, we need to be more proactive. Let's welcome Avurum. Alvarum, welcome to AFM Winds of Change.

SPEAKER_02 2:40

Very glad to be here.

SPEAKER_03 2:45

Hi Alvarum. I don't know if it's me or if you can realize that that your microphone seems to be quite low volume, but now it's better. Now it's a lot better, yes. Okay, fantastic. Welcome to the podcast. ASB Renewables. Tell us a little bit about ASB, what it is, what is it that you stand for, what is it that you do, and what is your vision? Just briefly we'll go more deep in renewables.

SPEAKER_02 3:11

We have been working on the space of different technologies with the idea of being an advisory firm in southern Europe and emerging markets with a certain focus in Africa, in two main technologies, solar and storage, and with three main business verticals, which are mainly the long-term financial structure with focus on EPA structuring, long-term finance both for CNI, so commercial and industrial, and also utility scale. And then we also work on advisory for transaction. We are currently seeing a lot of programs on the renewable market. There are a lot of players that are getting into new markets, selling or rotating assets so that they can have a better return on the investment. This is something we actively take part on by participating with multiple developers at DP companies on the space that we work through and try to navigate through these uncertain times we're all going through, especially flexibility markets, capacity markets, and everything related to the new business model that are emerging, right? And so yeah, I think we can discuss on based on that on many different aspects since a lot of the debate is going through many of those areas.

SPEAKER_03 4:17

What would you say has been the biggest shift over the last years? Because there has been a shift in the industry when we take the period of last 10 years perhaps perhaps. What would you say is has been the biggest shift within the renewable that is not?

SPEAKER_02 4:31

Connecting to what you said at the beginning, that and I totally agree that solar and battery storage is no longer a niche, but it's more like becoming little by little, let's say, a mainstream market. I do come from the wind industry, so I have been feeling all this massive change on a significant, like quite a short period of time, to be honest. I totally agree that one of the main factors driving this on the one side is the fundamentals, so basically the KPIs, right? If we take into account the LCOE on the technological level, we get into the conclusion that at the end of the day, solar and battery all combined, or even solar by itself, is becoming the most competitive energy source. The reality is that prices have been dropping dramatically, as you can see on the price of models that have even been under 10 cents. And the reality shows that it's no longer a matter of whether you are investing or not on energy transition, it's more a matter of energy reliability and the payback of a certain investment when you are investing working with solar or battery storage.

SPEAKER_03 5:32

So, would you say that the investors are a little bit more selective now and a little bit more careful before they actually go into an investment, before they actually go into a project?

SPEAKER_02 5:40

Yeah, well, the thing exactly is that at the end of the day, the fundamentals of the Mudges model makes it a very clear decision when it says, okay, I'm going to invest this and within a reasonable investment. But it's also true that the massive deployment of solar in a short period of time has made it also quite a risky investment in some parts, especially markets where the penetration has been so high that on the pricing aspect, the return is not so clear anymore. So answering basically to your question, it can be a more selective type of investment compared to what we used to see five years ago.

SPEAKER_03 6:15

Talking a little bit into the Iberian market, Spain and Portugal, the solar growth has been enormous. It's it's it's at least Portugal. And as I'm chiming through Spain every now and then, it's becoming more and more of a predominance within the renewable. Is there anything that we, Spain, Portugal, are doing different than the rest of Europe, or is it different kind of approaching the renewable? Of course, we have the sum, other countries have the sum as well. We are in the lucky position of both Portugal and Spain.

SPEAKER_02 6:43

I always like to refer as Iberia because at the end, it makes sense not only from a geographical perspective, but also from a solar radiation perspective. If you draw a map of Europe and you try to get a satellite view, the first thing that draws your attention is that there is a sort of border which is very clearly visible in terms of the presence of solar radiation compared to the rest of Europe. That makes it quite a unique market. It's the level of interconnection to the rest of Europe still very limited. But the outcome of this is we are following a different dynamic compared to the rest of Europe. That can get a very interesting investment case from someone that is looking for a particular solar market, also have some challenges as well. But yes, totally.

SPEAKER_03 7:28

I think grid-wise, we are pretty much interlinked between the two countries. So we are one Iberia grid connection. I don't think that the grid connection towards the rest of Europe or even a potential connection towards North Africa is there, yeah. And that could be quite potential growth, actually, we could make that happen.

SPEAKER_02 7:46

At the end, we're talking about a common market, but if you take the level of interconnection both to France and to Northern Africa, that would completely make sense. We are still under 5% of the level of interconnection. The immediate consequence of that is clear, which is we keep deploying solar massively. We are following some targets for 2030 as part of national renewable master plan, both in Spain and Portugal. And then at the end of the day, we're basically getting into a certain problem, which is the more solar we get, and the constraints on the interconnection side made it difficult to match the supply and the demand. And exactly as you mentioned, that would be an ideal scenario so that we can supply the rest of Europe with our very competitive solar source. But unfortunately, we are not yet there.

SPEAKER_03 8:28

Is it political, maybe? Because if I look into Portugal's renewable energy demand towards factories, especially factories in Portugal, they are being limited or they get penalties if they are not going into a renewable transition. And then every year they imagine it, they don't meet the targets. Unfortunately, they do get fines for that. So I wonder how much political there is behind it that growing further and making this a little bit cookie.

SPEAKER_02 8:54

I would tend to agree on that because it's clear that although we tend to talk about a European energy policy, and we definitely see things like the Net Zero European Act and other decarbonization policies at the EU level. But the reality is each country is following a different policy making at the very high level. And that shows that, for example, for a country like France, the massive deployment of Iberian solar with the more competitive LCOE would definitely threaten somehow the position of their own industry, which at the end we all know is based on nuclear, right? So I totally feel that somehow, well not everything, but the political factor is something to be considered necessarily because it's a matter of a national priority in some cases. And the other thing to be considered as well is, of course, I mean, is the level of investment required for this interconnection to be deployed. That's another topic that would probably take extra commitments of the project expenditure. I will know we are in a situation where that's not very easy.

SPEAKER_03 9:52

Would you say that one of the biggest challenges, maybe areas that are not looked too much or not enough into it when going into international markets? So, for example, if an international customer goes into the Spanish market, Spain is, and correct me if I'm wrong, but Spain is, although it's a very big country, it has one common law, but it has a lot of regional laws also. And a lot of different ways of behaving and of accepting things. Would you say that an international developer needs to take that very highly into consideration when they come up into the market and invest?

SPEAKER_02 10:22

Yeah, well, I think that the complexity of the regulatory aspect is something that always needs to be pointed out. I've been lucky that all through my experience, I've been working with a lot of international investors to get into Spain. I even work with many German companies and did all the setup of the holding structure within the Spanish market. It's a very complex forecast for any international investor to have a clear picture of how things work. Because at the end of the day, it's very similar to how a federal state might work. As you mentioned, regional disparities are very high. It's very different on the business level to create a company or even to operate in Madrid, for example, compared to what happens in the South or compared to what happens in Catalonia, to show an example. That's not necessarily bad because we all know that competition between regions can also somehow attract and enforce the design of more incentive policies. But from the perspective of an investor, it takes time. It takes time to get used to it. And we all know that simplicity as streamlining the process is always better for attracting investors.

unknown 11:25

Yeah.

SPEAKER_03 11:26

I certainly agree that having that competitiveness between regions is actually healthy, especially for the local communities, because that helps one region to be more competitive than the other one and develop each other a little bit better. Which brings me to the next point with the development and the growth that we have seen. How do you foresee the impact within local communities? Are we actually reaching out to the local communities and supporting them, also supporting them with all the investments that is being made?

SPEAKER_02 11:52

I think definitely that's one of the key topics, Afonso. I'm glad you are raising this issue because we tend to talk a lot about the energy transition. And for example, now you see a lot of posts on social media and in general on the news saying that by far the Iberian market is the one suffering the least impact in terms of the diesel crisis and the energy crisis where we're seeing on the Ormuz Strait. But the reality is that on the day-to-day activity, what is really impactful is how the local communities perceive this impact on their bills, on their activities, on the job creation. I think one of the challenges on renewable transition is basically involving communities much more. Now there is a general movement all through Europe, especially in solar, there are a lot of challenges coming from a rejection of certain projects as a result of the visual impact, environmental impact, and totally the fact that the communities don't feel necessarily involved in the project. I think the developers really need to go further on developing community engagement programs. For example, some very interesting initiatives on different platforms, on crowds, by letting the communities participate under public equity actively. That's very interesting. But I think also it's a matter of communication. When you get into the ground, you get them well, you co-participate in the initiatives, you are definitely going to get more endorsement on the community level. I think that's definitely something that is yet to be improved somehow.

SPEAKER_03 13:13

I fully agree with that, especially when it comes to going back home into Portugal nowadays when we see a lot of solar wing farms coming up and have the conversation when private investors would like to go into solar as well, because they have the land. But I don't think that the bridge is made yet where a private investor could maybe reach out to someone with crowdfunding, with supporting with investors or whatever, but somehow integrate more of the local communities if they have land, if they have space that they would like to invest in, be part of the investment. That should be part of the development of any probe, any project. Um, and that's something that I am not seeing, at least not hearing yet. But it could be interesting actually if we could somehow support that. Because all of a sudden, instead of having land that you need to purchase or land that you need to rent, you have that land available and it helps everyone.

SPEAKER_02 14:04

Yeah, exactly. Just as an example, in Galicia, talking about wind, we have seen more than three years without any new license approved for wind projects. And one of the reasons was basically the one you mentioned, which is the total refusal for the local town councils to get the licensing for those projects. And as a result, there was a ban on new wind tram development, which was I'm a bit concerned because I think that there is massive opportunity in terms of economical impact and job creation as a result of this. But as you mentioned, it's a matter of getting them involved on this and reaching out to them on a more transparent way, probably.

SPEAKER_03 14:38

What would you say is the biggest challenge and what's the biggest opportunity with the growth? And then not just focusing on solar, because I think that we need to go a little bit further and we need to develop where we have perhaps even all three. So storage, solar, and wind. What would be the biggest challenge, but also what would be the biggest opportunity if somehow we could look into that within the next 10 years as a future, you know?

SPEAKER_02 15:02

I think that the more balanced approach is probably keeping a sort of agnostic view on the technological level. I never believe somebody that is strongly endorsing a certain technology versus another, because I think the right approach at the end is having a more balanced view on how these sort of technologies are gonna benefit the final customer and the off-taker, which I think is the main uh player in here. Battery storage is definitely a big opportunity now and also a big need. We also what happened on the blackout that took place last year. Back in April, we got a full day without electricity, which was something that not not many people could expect that would ever happen. But we cannot say that from a TSO level, that was something that was not on the forecast. Because at the end it was a risk that could potentially happen when you have central hours during the day as managed by grid following type of technologies. And as a result, the massive deployment of batteries has become more like an urgent need because you really need to balance the extra capacity of solar by offering another technology as a backup and complementing it with other types of grid forming technologies that are going to support the grid. Now it's true that this role is being somehow played by the natural gas, and we are seeing all the impact because we are paying the ancillary services, and this is translating into energy pills, right? But this is what shall be happening is the roadmap of storage reaching more than 20 gigas. This is what we find on the national renewable master plan, Panique, but it's also from the investor side, everyone is willing to connect to battery storage, either through collocation to standalone batteries. We are seeing now also big appetite for standalone projects on different development stages on that side. And also wind, I think we shouldn't forget the part of the gateplay by wind. Industrially, wind is the backbone of the renewable segment in Iberia. We have very powerful and strong companies on the space, and it also plays a role when balancing the curtain on solar and matching a more mixed profile. So I think at the end of the combination, all of them is necessary to go through a more stable energy transition.

SPEAKER_03 17:14

Especially the batteries and the blackout that you've mentioned that we had last year. Of course, now everyone is maybe a little bit more prepared, but it doesn't change the fact that it might happen, especially with all the grid needs nowadays. The more electrical needs that we have with the electrical vehicles, with all of the growth that we are seeing. I wouldn't be surprised if in the summer, especially south of Portugal, when everyone is charging and so on, that the grid simply cannot handle it. When we look back maybe more than 10 years ago, the biggest challenge within the renewable was to be able to produce reactive power so that the factory engines could actually run on reactive power if we need. I think now we have another need as well. We have the need to, of course, maintain the reactive power, but there is a need also to have that capacity, to have a stable grid that can supply it all day and all night, which brings me not only to the gas, but to the hydro plants. The hydro plant is something that somehow is being left behind a little bit, which is a shame, especially for countries like Spain and Portugal, where we have a lot of capacity and we have a lot of strategic points where we would have that coming as well. And it is part of renewables, it is a renewable energy. I don't know if you have some thoughts about that here, what you share.

SPEAKER_02 18:27

It's for some reason they tend to forget that hydro is definitely a very important renewable generation source as well, and it has been here for a longer period of time. It's also important to point out is because now we are seeing the disruption of solar, but let's be reminded that the track record of hydro is very long in the time period and very effective when it comes to the generation mix. My views on this is that if we see the recent track record on hydro and the impact on the price is very clear. For example, on Q1 this year, when the Iberian market a massive, unusual, let's say, let's call it that way, hydro resource because of the result of a very high rainy period or more higher frequency, let's say, especially in some regions. And for example, the day-ahead market was very much impacted by that because in a period where naturally there is less solar, there's wind, of course, but there's also natural gas, we got very low prices. We had prices that were under 20 euro per matt oil. What was the immediate consequence? It was like the weight of hydro tend to be forgotten, but it's very relevant. And it's also very relevant when you come to compare to creating a model where the generation by itself can be sustained on a renewable source, and there a hydro will definitely need to play a very important role.

SPEAKER_03 19:43

That's that's something that we definitely need to look into. Anything that you would wish to change to make this process, to make this growth even better.

SPEAKER_02 19:51

I mean, of course, no nobody has the crystal ball to figure out what shall be the ideal scenario, right? But for my view, at least, what I would think is very important is to somehow streamline the purpose in process, which is something that is very clear on the view of outsiders, someone that is willing to streamline the renewable penetration, but it's not so clear from the perspective of the actors that are involved in this process, right? For example, the battery deployment is very critical on that because if you're aware about the current spreads on the day ahead and your possibility to somehow get the maximum out of it for the next few years, especially the next three, four years, there is a window of opportunity. So it doesn't make too much sense to spend three years, four years on a permit in our battery standalone or even a collocation where when the spread is definitely an opportunity that is not gonna be forever. The other thing is a more direct contact between the generations of the supply and the demand. So now, for example, in Iberia, in general, I think we tend to forget the importance of electro-intensive industry, the ways through which now we are trying to attract data centers, but we cannot do that without thinking of a wholesale market price and to what extent the competitiveness on the day ahead is impacting on the competitiveness of the energy bill those industries are paying. If those industries feel that they are basically paying an extra cost because of these taxes, ancillary services, and so on, we're losing momentum and we are losing attractiveness as a market. So I would put the focus on the industry because I do really think this is the main lever to basically accelerate the transition. And the third part you mentioned, I think is also very relevant, is the electromobility. I think Portugal is doing a better job on this. But unfortunately, there is still a long way to go if we really want to electrify one of the less electrified segments, which is transport. And for that, we really need deployment. There is still a scarce network of EV chargers, and the pricing also needs to keep going down in order to implement penetration on EVs on a more general level. So that's some of the things that we'll try to highlight on how we could improve.

SPEAKER_03 21:55

Yeah. I definitely agree with that. The EV charging stations or the pricing for charging the EV V. Vehicles, it needs to be attracted, otherwise, it's simply not worth it. Another risk that I see, and I touched on it a little bit, and that's grid capacity with the amount of charging stations that we are seeing. For example, I live in a small city, and we have now the third one being built, a charging station, and we don't have the grid capacity for that. So that's something that as an investor you need to look into is will it be able to handle a full peak season when everyone is using that and consuming? Maybe that is then when the batteries really need to come into place. But that's not in place yet. So it's it's ongoing, right? It's a growing, it's a growing.

SPEAKER_02 22:37

But I do agree also with what you mentioned is no matter how much you want to electrify and how much you want to invest in new extra capacity, or for example, uh new capacity for hydrocharges for EV chargers through electrolyzers, for example, on massive scale. But the thing is, there is no capacity available, that's a problem. Now in Spain, we have 85% approximately of capacity which is already taken, or it's already non-available for new development. So that's something we need to address as well.

SPEAKER_03 23:08

What could you say 10 years from now? Where would we be if we could be able to do everything that we would like to? Where would we be in a transition wise?

SPEAKER_02 23:16

Where we'll be on that's the type of exercise I like also this. I think we agree on this. I mean, we are on a massive, we do have a massive opportunity right ahead of us in Iberia, which is at least what I think is becoming the really the energy hub when it comes to this clean green transition. With a resource that would have been somehow granted for free, let's call it that way. I mean, we have the sound, we have the wind, we have the hydro, but we shouldn't forget that this is not something that we shouldn't take for granted that there is no extra investment to be done, and so major reforms. I do expect that the penetration of renewables, the electrification of the demand, the streamlining on the permitting process so definitely drive to any foreign investor, considering any of the location worldwide, to consider the Iberian Peninsula as the best place basically to invest in this technology. And the reason is simple because they are assuming the less amount of energy cost in their daily activities, which at the end is what we are all looking for. This is the right direction, and this is ideally where I would see ourselves in 10-year periods.

SPEAKER_03 24:20

I fully I have a deep appreciation for how Spain deals with economic growth of the country itself, and how Spain deals with all the developments and the industry developments. And if we look into Spain, South Spain, there is an area in Spain, South Spain that is full of greenhouses, for example, it's full of vegetables. And if we drive through that, and you can imagine, I was driving through that some weeks ago, through that area. And if you can imagine that's possible to have the mountains everywhere as greenhouses, but we can imagine that we can use the lands, use the opportunity and grow or develop solar farms, battery farms, data storage centers, which is being developed in Spain, by the way, is being built in Spain, big, massive data processing centers. Together with the growth that we are seeing in artificial intelligence and technology growth, we can make Iberia in 10 years a hop for the full Europe.

SPEAKER_02 25:14

I think we do take our blessing on those technologies and making us it really. The region you mentioned is uh Maria, exactly, is very highly recommended, by the way. It's one of the few places that you could see from the NASA spatial station. It's human constructions, which I think is totally surprising, but it's not that surprising once you get there and you see the three houses, one close to each other.

SPEAKER_03 25:36

It's a beautiful area, and if you then go a little bit more north from Mount Maria and you try north, then you go to Granada area, and that is actually where the Western movies from Hollywood have been filmed. It's in the desert and at desert areas. Some people don't realize that Spain is actually the Western that we see in Hollywood movies. That area at least is where we see it. So it is amazing. Like I said, I have a deep appreciation for Spain itself, the council, and the way that Spain develops itself and grows further. To close off, last thoughts. Let's talk about what you would recommend to developers, investors for the future, looking at the future at the moment, with your knowledge now, with what you are doing now.

SPEAKER_02 26:17

I think that the best way to operate now is having a roadmap, but at the same time being to shift and to be flexible within this roadmap. I think the period of having 10-year forecast was great and definitely allowed some very massive growth, especially in segments like solar and wind. But now we are entering into a very different business model where the technology is no longer commoditized, requires active involvement, it requires active decision making. And what I would highly recommend is getting highly involved in this process, getting the forecast, but at the same time allocating the risk exposure to different technologies, different markets, and having a clear view on if things change, you shall be able to change along with that. So that's how I can view the situation, the business, and how we would recommend anyone willing to operate is basically how we try to work with our clients from ASB Renewables. Thank you very much, Alfonso.

SPEAKER_03 27:09

So there you have it, guys. Again, a wonderful conversation, a good insight on how the energy is growing, how the renewable market is growing, but more important, how this transition is happening. It's moving fast. The sector, the industry is moving fast, looking into the future, looking into what it is that we need towards renewable energy, solar, wind, hydroplants, gas, storage. Storage is a big player that needs to be developed a little bit further. It needs to be thought about a little bit further. But as you can hear, there is a lot of things that need to be taken into consideration. There was a lot of opportunities also. There's a lot of aspects that when you are investing, you need to take into account that you need to be able to shift. I wouldn't say shift your goal, but shift with the changes and shift with the challenges that you meet along the way. And it's a little bit like a wind turbine. The wind turbine is moving around and finding that wind and moving as the wind moves, turning as the wind turns as well. And that's also a little bit how we need to approach, I believe, anything in life, especially with this growth, this transition growth. We need to be able to have our goal, know where we are going, but be willing to change as well and to move direction if we need to move direction, because that's where the circumstances bring us to. Going back into what we are seeing nowadays, there's a lot of potential, there's a lot of things that is happening, but the grid needs to be able to handle it. And the interconnection between countries so that we are not operating on islands, grid islands, that needs to change as well. It's okay to develop, it's okay to explore and to export and to have more capacity to have more energy. We need to consume more energy. There is more and more need for consuming energy, but we need to be able to bring that from the solar plant into the household. And last note, we need to be able to involve local communities, we need to be able to, with the investments, have also investment in place and growth in place for the local communities. If we don't have the local communities behind us, if we don't have the support from the locals, then none of this makes sense and none of this will happen. Actually, in some areas, in some countries, it's getting stopped or getting hard to develop and to build because the locals are simply not having it. A lot of times they're not having it because they have no knowledge, they have no information, they don't get any feedback or any chances to give any feedback into it, and they simply deny it. As you have uh heard today, ESP renewables with um for those that are from the Iberian market, Spain, Portugal, it is a beautiful area and it is worth investing in it is an area that is gonna grow even more. Guys, for me, that's all for today. I'll see you next time on the next podcast, AFF Winds of Change. Don't forget to follow, don't forget to put that like. Reach out if you have any comments, reach out if you would like to share your opinion. We can are open to talk about any topics. For me, that's it. Take care.

SPEAKER_01 30:23

We appreciate your time and hope you enjoy this deep dive into the wind energy world. Stay tuned for our next episode where Afonsopharia returns with more insights. Until then, keep riding the winds of change.