Fiscal deficit forces Spain to slash renewable energy subsidies

Fiscal deficit forces Spain to slash renewable energy subsidies


In March 2007, European Union members agreed that 20% of energy needs will be sourced from renewable energy by 2020. Many EU governments reacted by pouring billions of euros in subsidies into their wind- and solar-energy industries. Yet in Spain, at least, the financial crisis that began in 2008 has exposed serious shortcomings in renewable-energy support policies, giving ammunition to critics who argue that both the wind and solar power sectors would not be viable without government subsidies.

Spain subsidizes renewable energy using ‘feed-in tariffs’, a subsidy mechanism whereby utility companies are legally obliged to purchase the available renewable energy at special above-market rates before they can purchase energy at market prices. Such policies typically guarantee operators of renewable-energy plants above-market rates for 10 or more years in order to increase investor confidence. According to the IEA, it is also good practice for a feed-in tariff to gradually offer lower rates year-on-year for new investments, taking into account cost reductions as technologies mature.

Currently, wind power operators in Spain can choose to sell their energy at either a feed-in tariff rate of €77 (US$ 98 ) per megawatt-hour (MWh) or the market price plus a premium of €30 (US$ 38) per MWh, up to a maximum of €90 (US$ 114) per MWh. The payments are guaranteed for the entire lifetime of the system, although tariffs are reduced a little after the first 20 years of operation. There is no pre-set schedule lowering tariffs for new investments as the technology matures.

Initially, solar power producers could sell their energy at a feed-in tariff rate set at €440 (US$ 565) per MWh, although after the onset of the financial crisis in 2008 this was lowered for any new projects to €259 (US$ 329) per MWh. Payments are again guaranteed for the lifetime of the systems, with slight reductions to the tariffs being made after a longer period than wind, 25 years. According to the IEA, feed-in tariffs are adjusted every quarter for new systems.

By comparison, the market price for electricity, which is set by the cost of energy sources such as natural gas, has been under €45 (US$ 57) per MWh for the last couple of years. This makes Spain one of the biggest renewable-energy subsidizers on the continent.

The feed-in tariffs have been very effective at boosting capacity in Spain, transforming the country into a world leader in wind and solar electricity production in just a few short years. In 2008 Spain accounted for half of the world’s new solar energy installations by wattage. Today it boasts the world’s largest renewable energy company, Valencia-based Iberdrola Renovables, which operates wind farms throughout Europe and the Americas. The heavy investment has also put it on track to meet the EU’s 20% renewable energy target by 2020. In fact, according to figures published by El País, Spain was already producing 20% of its electricity through wind and solar power in 2009.

But the crisis and subsequent European sovereign-debt-default scare has recently forced the government in Madrid to drastically cut spending by, among other things, reviewing its significant expenditure on renewable energy. In 2009 alone the country had spent an estimated €3.2 billion (US$ 4.1 billion) subsidizing solar and wind power.

The strain on government revenue is in part due to the way Spain has designed its feed-in tariff system. Usually, this type of subsidy is paid for by utilities charging more for the electricity they sell to consumers, to cover the cost of buying renewable energy at above-market prices. Therefore no money is actually paid out of government revenues: consumers bear the cost directly by paying higher electricity bills. In Spain, however, the price of electricity has been kept artificially low since 2000. The burden has been shouldered by utilities, which have been operating at a loss on the basis of a government guarantee to eventually pay them back. The sum of this so-called ‘tariff deficit’ has accumulated to over €16 billion (US$ 20 billion) since 2000. For comparison, Spain’s deficit in 2009 was around €90 billion (US$ 116 billion) in 2009 and its accumulated debt around €508 billion (US$ 653 billion).

Due to this growing cost and the need to cut spending, Spain’s ruling Socialist Worker’s Party launched negotiations with the wind- and solar-power sectors earlier this year over cuts to feed-in tariffs. In July, the government managed to reach an agreement with the wind-power sector under which it will cut the top-up rate to wind energy producers by 35% until 2013, a move that could save the country as much as €1.3 billion (US$ 1.6 billion), according to Spanish daily El Mundo.

It has been more difficult to reach an agreement with the solar power sector, which is much more heavily subsidized due to its higher feed-in tariff rate. In 2009, the solar power industry received over €2.6 billion (US$ 3.3 billion) though it supplied only 2% of Spain’s electricity, while wind received €600 million (US$ 764 million) for supplying 18% of the country's electricity.

Having already cut tariffs for new projects in 2008, the Spanish government announced in May of this year that it would again be reviewing subsidies to the solar-power industry, launching rumors that retroactive cuts were being considered, which sent shockwaves through the sector and froze new investment.

After failing to reach an agreement, on 31 July the government announced plans for a further 45% cut in the feed-in tariff for new ground solar installations, the plant-type which currently makes up the majority of solar capacity in Spain. The government is also considering a cap on the amount of electricity that solar companies can sell to utilities, a change which would be retroactive.

Subsidy Watch spoke to Juan Laso, president of the Asociación Empresarial Fotovoltaica (the Photovoltaic Industry Association), who said that the reason that billions of euros had been invested in solar parks throughout the country was because Spain had guaranteed the fixed feed-in tariffs to solar-power producers for 25 years. He argued that the proposed cuts would render existing investments unprofitable and, given that most of the costs associated with solar-power production are paid up-front, could lead to many solar-power companies going bankrupt and defaulting on investment loans.

It is not clear what the future bears for Spain’s once-promising solar-power industry now that investor confidence has clearly been shaken, one of the cardinal sins of a good renewables support policy. It also seems evident that despite the best of intentions regarding environmental sustainability, subsidies to renewables can be economically unsustainable if they are not well-designed – to both the detriment of the public purse and the development of a future, low-carbon energy supply.

Italy PV still in vogue

The closely watched Italian solar market is only slightly relieved by the announcement that Italy will extend its current solar incentives until the end of August.

Italy's regional governments had said previously that they would seek less severe cuts to state incentives for the solar power sector, which were due to end in June. The regional leaders also rejected draft proposals from the government after a meeting today.

Environment Minister Stefania Prestigiacomo said they had also asked for an extension of the current incentives, not until the end of August, but until the end of 2011. The three-month extension until the end of August is under discussion.

The Italian government instituted policies to promote solar in its country, which despite its abundant sunshine, has to import 87% of its electricity. Solar installations in Italy took off—growing from just 60MW installed in 2007 to nearly 2GW in 2010.

Feed-in tariffs were expected to be reduced in June, which many thought would curtail the expected 4GW installed in 2011. An extension through August may send the market soaring through the summer months, though uncertainty may follow.

SOLAR MODULE SALES PRICE of $1 per Watt - no longer theory

Solar module sales price of $1 per Watt no longer theory

Edwin Coot of Solar Plaza has stated that In 2010, the objective is to reach a selling price for solar modules of $1 per Watt,” says Lynn Sha, Vice President of Chinese manufacturer QS Solar. In other words, it will become possible in 2011 to produce solar energy cheaper than the cost of electricity from the grid (“grid parity”), and this is without subsidies.
By Edwin Koot, Solarplaza

Revolutionary price level will mark start of solar revolution
This revolutionary price level could be sufficient to create sustainable growth in the solar energy market (PV) even without the availability of any government incentives. “The solar industry has always claimed that its goal was to attain this level of $1 per Watt. Reaching this benchmark will be the turning point from which markets will emerge and grow without any government aid. It is the start of the solar future,” says Edwin Koot, CEO of SolarPlaza, the global, independent solar energy platform.

Module prices are currently under pressure. Last year’s enormous growth of the solar industry and market by more than 100% was caused by a generous feed-in tariff in Spain. Many new companies started production of solar modules. This year, support in Spain has been decreased and capped. “This could not have come at a more dramatic moment. The simultaneous loss of Spain as a major market, the inevitable industry oversupply, and the financial crisis have pushed down module prices since Q3 last year,” says Koot. “Good for customers, challenging for the industry.”

QS Solar started production of its amorphous silicon thin-film modules last year. “We will bring down the sales price to our goal of $0.75/Wp through the continuous expansion of our production capacity and process optimization.” The company currently has 3 production lines with an installed capacity of 95 MegaWatts, and it plans to increase another 4 lines by 2009, which will lead to a total capacity of 235 MW by next year.

The $1 per Watt level is already sufficient to achieve grid parity in many markets. A lower level might not even be needed to serve an infinite global market potential for photovoltaic solar energy.

Lynn Sha and CEOs from the world's leading PV companies (such as Q-Cells, Suntech Power, Applied Materials, and Akeena Solar) will be discussing the above topics at "The Solar Future" conference organized by SolarPlaza on May 26th in Munich.

About SolarPlaza
SolarPlaza, based in Rotterdam, Netherlands, Solarplaza.com is the independent global platform for knowledge, trade and events for the photovoltaic solar energy (PV) industry.

Solas Power Outlook

Solas Power has seen that thanks largely to hefty government support, Germany's solar market has become the largest in the world. Germany has installed half the world's solar power every year since 2007, adding 8.8 gigawatts in 2010 alone. The trend is expected to continue in 2011, with German installations providing nearly half the world's 20 new gigawatts, according to data provided by research and analysis firm iSuppli Corp. and confirmed by other analysts.

But things could get shaky in 2012. Revisions to the country's Renewable Energy Sources Act are due in mid-2011. If the powers that be decide to cut "feed-in" tariffs—which encourage homeowners to add their unused alternative energy to the grid—it will put the brakes on Germany's solar surge.

New photovoltaic output is projected to continue growing globally over the next five years, as other key markets offset the relative decline in Germany. Leading the pack will be Italy and the United States. The U.S. market alone will rise almost tenfold, from less than half a gigawatt in 2009 to more than 4 GW in 2014, according to iSuppli. Japan will lead a fivefold increase in Asia. The European Photovoltaic Industry Association also foresees fresh demand from markets such as Canada, China, Greece, India, and the United Kingdom. According to Solarbuzz's 2010 industry report, "even in the slowest growth scenario, the global market will be 2.5 times its current size by 2014."

Solar Update, FIT, Italy,

Photovoltaic market to see sunny 2011

Brightened by the German, Italian, and US markets, photovoltaic solar instillations are expected to rise in 2011, but rollbacks in other countries add clouds to Solas Power's positive outlook.

Global photovoltaic (PV) solar instillations in 2011 will rise by 39.3% on the strength of Italian and US demand, with growth during the year limited only by reductions in government incentives in certain European countries, according to Solas Power.

It has been recently reported that growth in the PV market in 2011 will cool significantly from the 120.5% increase it saw in 2010, but noted that worldwide installations of renewable solar energy systems this year still will increase at a healthy rate, reaching 22.2 GW, up from 16 GW in 2010.

Germany will continue to be the world's largest PV market this year with an estimated 9.4 GW worth of installations. Italy will be second, Solas Power said, noting that it represents an accelerating market that promises one of the world's highest internal rates of return. Indeed, Solas Power said it expects solar installations in Italy this year will double, growing a full 100% to 3.9GW, up from 1.95GW in 2010, compared to Germany's 19.8% expansion.

The United States is expected to come in third, projected to see 2.1GW worth of PV installations this year. However, commentators cautioned that with federal incentives less likely to be renewed in the near term following a shift to a more conservative US Congress, power now will reside more with individual states to carry out initiatives.

Solas Power woud also warn that the German market might see a further reduction in feed-in tariffs (FIT) in addition to the scheduled annual cut intended to bolster the solar industry. Should the country's FIT be cut by mid-year, PV installations in 2011 might end up at the 7GW level, not the more optimistic forecast of 9.4GW without the FIT rollback, the company said.

Solas Power further reported that the PV markets in Spain, France, and the Czech Republic are not expected to expand in 2011, given the serious measures under way to trim the solar investor business in those countries.

German Government announces FIT reduction for 2011

Solas Power News - The German Government has reached an agreement with the country’s solar industry to tailor solar photovoltaic (PV) feed-in tariffs to installed capacity.