Tax advantages of Canary Islands for the renewable sector

Javier Garabal

The Canary Islands, a natural paradise… also for business in the renewable energy sector?

To many people, the Canary Islands conjure up images of sunshine, holidays and beaches. This is no surprise as the archipelago attracts more than 15 million tourists every year.

However, lesser known are the islands; natural and financial advantages for the renewable energy sector, most notably for solar, wind and hydro-electric power.

Not only do the islands enjoy 2,500 hours of sunshine per year (yes you calculated that right) – that makes almost seven hours per day all year long. Photovoltaic installations operate for more than 1700 hours in the year.

The islands are battered by Trade Winds with average speeds of 6 to 8 m/s, which make wind farm yields between 3,000 and 4,500 equivalent hours.

In particular, the Canary Islands, have proved particularly attractive for pioneering floating wind farms. (Here is a link to a Bloomberg article.)

As these are volcanic islands, geothermal is another form of renewable energy. Marine energy research is helped by access to deep water near the coast.

Did you know that El Hierro, the smallest of the Canary Islands is close to becoming the first island in the world to become fully self-sufficient for renewable electrical energy?

To achieve this, the 268-square-kilometre island has installed five wind turbines, two water deposits, four hydraulic turbines and a pumping station in order to make the energy it requires, even when the wind is not blowing.

Thanks to this system, the island has managed several times to meet power demand with 100% renewable energy for more than 15 consecutive days.

Gran Canaria – a much bigger and more populated island – is already moving forward to install a similar system.

However, apart from the islands natural advantages, they offer financial concessions for investors in the renewable sector.

Classed by the European Union as a European Outermost region, the Canary Islands enjoy a unique “economic and fiscal regime”,  which permits a corporate tax rate of 4%.

Companies may also claim a special tax deduction for research and development and technological innovation. This means companies can claim back between  35-55% (and up to 90% in some cases) on investments from the Spanish tax authorities.

In exceptional cases, they can claw back 90% on investments depending on a series of factors including the workforce and the deviation compared to the previous year.

These schemes are not tax dodges but legal cash-back programmes designed to help investors. Perhaps for these reasons, the islands have often been referred to as “world-class natural laboratory for renewables”.

Another plus is their geographic closeness to Africa.

The islands’ proximity to western Africa (Fuerteventura is only 100km away from the coast of Africa) makes the archipelago also a unique platform to operate in that continent.

Companies have opened operation or maintenance centres for, for example, for micro wind turbines firms. These operate in a safe environment with qualified employees which is attractive for international expatriates.

For all these reasons, the Canary Islands should definitely be in the shortlist of possible locations for companies in the renewable energies field, particularly as Brexit seems a certainty.

While the consequences of the parting deal are still unclear, places like the Canary Islands can prove an attractive location.

Companies looking for stability and certainty, the full EU legal framework, major R&D incentives, not to mention a great quality of life for workers, should turn look to the Canary Islands.