CEDILLO ALLOCATION GREEN ENERGY FL 20220085

Financing of the Cedillo (375 MW), Velilla (350 MW), Ciudad Rodrigo (304 MW) and Peñaflor (137 MW) solar photovoltaic (PV) projects and of the Iglesias on-shore wind farm (70 MW) in Spain. Second allocation under the framework loan (FL) IBERDROLA GREEN ENERGY FRAMEWORK LOAN II.

This project consists of the construction and development of new renewable energy plants that will contribute to the EU-wide target of 32% of energy from renewable sources in gross final energy consumption (RES) for 2030 as set out in the current EU RE Directive (Directive (EU) 2018/2001), and the national targets as defined in the Spanish energy and climate plan (NECP). The project will also contribute to achieving REPowerEU objectives of increasing the RES 2030 target from 32% to 42.5%. Based on the information received, ca. 89% of the plants in this allocation are located in EU Cohesion Priority Regions. The financing of this project is in line with the Bank's priority energy lending related to renewable energy and climate action.

The allocation increases the production of electricity from low carbon sources (solar PV and onshore wind) and addresses the market failure of negative climate and environmental externalities through the reduction of carbon emissions and other air pollution. The allocation will contribute to the European RE target of 42.5% in gross final energy consumption for 2030, which is expected to be adopted in the revised Renewable Energy Directive (2018/2001/EU) as part of the REPowerEU Plan. The allocation will also contribute to the Spanish NECP -currently under revision for more ambitious solar PV and onshore wind targets.

The financing of this allocation also contributes to Bank's lending priority objectives on Energy (Renewable Energy) as well as on climate action (transversal), and on economic and social cohesion (transversal). The project produces electricity from low carbon sources (solar PV and onshore wind), addressing the market failure of negative climate and environmental externalities, through the reduction of carbon emissions and air pollution (compared to fossil-fuel generation). As the schemes are expected to rely (at least partially) on revenues from the market (the wholesale market and/or unsubsidized commercial Power Purchase Agreements), in a sector characterised by incomplete markets (limited forward/hedging, lack of scarcity and locational pricing), the project improves market efficiency and competition. The schemes are mostly located in EIB Cohesion Priority regions.

The project Quality and Results is rated Very Good. The project has an excellent economic return and the current electricity market prices are not fully reflecting the value of electricity. Besides, the promoter has a recognised in-house design and project management capacity with a significant track record of international energy projects.

EIB's contribution is considered Very Good. The EIB's offering is more favourable than market alternatives under various dimensions. The promoter deems financing with an "EIB Green Loan" label as a stamp of quality on its investments and environment-related procedures. The Bank will monitor the operation on an annual basis (annual Project Progress Report).

The overhead transmission line for "Iglesias" wind farm is included in the Annex I of the EIA Directive 2011/92/EU as amended by Directive 2014/52/EU, with ca. 20km in 220 kV. All the PV plants and other grid interconnection infrastructure are included in the Annex II of the EIA Directive and have been screened in by the competent authority. All plants and associated infrastructure underwent an environmental impact assessment (EIA) process, including public consultation. The plants and associated infrastructure obtained their environmental permits (Declaración de Impacto Ambiental - DIA) between September 2022 and January 2023. The authorisation procedure and compliance with the relevant EU directives, specifically Habitats and Birds Directives (92/43/EEC and 2009/147/EC respectively), will be assessed at appraisal, in particular the potential cumulative impacts assessment and the impacts on protected flora and fauna, including Natura 2000 sites. Given that China largely dominates the market of photovoltaic solar panels, and media reports that supply chain of these products would involve forced labour, the Bank will apply an enhanced due diligence on the topic, in line with the EIB's Environmental & Social Standards.

The promoter has been assessed as a private company and the schemes envisaged for this operation are market-based renewable energy projects, which do not enjoy any special or exclusive rights. Therefore, private sector procurement procedures should apply. However, if at appraisal, the EIB were to conclude that the promoter is subject to the EU public procurement legislation then the Bank would require these rules to be applied.