Spain’s Power Struggle with Solar Power

The dark side of trying to jump start renewable energy in a cash-poor economy is playing out with reports that Spain is under heavy pressure to reverse or tone down plans to reduce its special ‘feed-in tariffs’ (FiTs) for photovoltaic energy operators.

The reductions are intended to staunch some heavy and unanticipated monetary bleeding caused by the tariffs that were designed to boost the country’s PV industry.

While sunny Spain has had a PV industry in place since the 1970s, most of the PV energy produced there was exported to other countries.

But under royal decrees issued between 2007 and 2008 and the resulting attractive FiTs, there was sharp growth in the PV sector. The plan was to achieve 371 MW of capacity by the end of this year; that was quickly surpassed when investors from other sectors such as pension funds, banking and construction, lured by the profits to be had entered the fray. The generous feed-in tariffs – or guaranteed wholesale prices – encouraged tens of thousands of investors in search of regulated returns to put their savings into solar energy projects.

Over the short term thousands of jobs were created and the huge demand in such a short time “motivated changes around the world, increasing manufacturing capabilities of all the suppliers throughout the supply chain to meet demand. In the same way, the national demand promoted the development of the Spanish PV industry, creating a number of new companies, in all steps of the supply chain,” notes Esther Pérez, of the Polytechnic University of Valencia in a Solar Novus Today article, “Tremors in the Spanish Photovoltaic Industry.”

However, over-investment in solar parks and some abuses of the payment system forced Madrid to slash tariffs for new plants and impose capacity quotas in 2008, pricking what threatened to become an asset bubble, according to a news report in the Financial Times.

The recession-hit government wants retroactive cuts of nearly 30 percent on what existing PV generators receive per kilowatt hour, by either directly cutting the feed-in tariff or capping the number of production hours receiving the subsidy.

“The greater than expected number of PV installations cost the government millions of Euros,” says Perez.

More regulations and decrees are in the works that would reduce the costs that PV installations cost the government. The regulations impact all renewables but will affect Spain’s PV industry the most.

“At this moment, those in the PV industry together with other renewable energy associations are in tense negotiations with the government, trying to find an agreement on these new regulations,” says Perez.

“Day to day, new messages from the ministry are spreading panic throughout the PV sector,” she adds, especially the threat of the retroactive FiTs decrease of 30 percent.

Those plans could take effect over the next few weeks and have also infuriated investors and sector financiers.

In a letter to José Luis Rodríguez Zapatero, the prime minister, a group of 10 international investors with 3 billion euros ($3.7 billion) tied up in Spanish PV parks warn that a 30 percent cut would “result in the loss of nearly all our shareholders’ funds and clients’ pension and insurance funds invested in the equity of these projects.”

The group, including AES Solar of the UK, private equity investors Hudson Clean Energy and Hazel Capital, and specialists’ funds such as Impax Asset Management, is among a growing lobby of investors pressing the government to rethink its plans.

The theory of unintended consequences seems in full play: Spain acted to boost its PV industry – perhaps too attractively – and when the economy and financial markets went south, now finds itself in an equity trap and regulatory morass that will be difficult to resolve fairly.

writer, editor, reader and general good (ok mostly good, well sometimes good) guy trying to get by

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