POWER June 2011 - 34

POWER POLICY
Subsidies: The Shadow on Solar
and Wind
Spain began subsidizing renewable and
combined heat and power sources after the
adoption of its Electric Power Act in 1997.
In 2004, a new law allowed renewable power
generators to choose between a regulated
tariff or a market price plus premium. And
in 2007-after the EU established a target
for member countries to source 20% of their
power from renewables by 2020-another
law set high and low electricity purchase
price levels for some technologies.
The level of public financial support and
total revenues per kilowatt-hour varied significantly.
In 2008, for example, wind generators
received €0.069 to €0.086/kWh ($0.10
to $0.12/kWh), while solar PV producers got
almost quadruple that: €0.32/kWh. This subsidy
mechanism, the so-called " feed-in tariff, "
was guaranteed for 25 years, or for the
lifetimes of the systems, to increase investor
confidence.
And it worked. Generous subsidies rapidly
boosted PV development in Spain. By the
end of 2008-just as the economic crisis hit
the country-solar PV capacity had exceeded
the initial capacity target for 2010 more
than eightfold.
After the onset of the financial crisis, the
price of electricity from new PV projects was
lowered to €0.259/kWh from €0.440/kWh,
reports The Global Subsidies Initiative (GSI),
an international watchdog that monitors " the
transfer of public money to private interests. "
4. Gas-guzzling. Since 2000, gas-fired generation
has grown by 101 TWh, driven by requirements
for fast capacity increases, wind power
backup, and Europe's cap-and-trade program.
Today, combined-cycle gas turbines (CCGT) have
an installed capacity of 26.8 GW-more than
any other fuel source in Spain. This image shows
HC Energía's Castejón CCGT Plant in Navarre.
The 2002-built Unit 1 has a capacity of 424.9
MW; the 418.5-MW Unit 3 started commercial
activity in January 2008. Should the supply of
natural gas be interrupted, Castejón 3 can also
use diesel. Courtesy: Iberdrola
By comparison, the market price for electricity
from natural gas, for example, has been
under €0.045/kWh. According to the GSI, in
2009, solar PV tariffs alone amounted to €2.7
billion, though the sector supplied only 2% of
Spain's electricity. GSI points out that wind
producers received €600 million for supplying
12% of the country's power.
Another critical problem with Spain's
feed-in tariff system is that instead of allowing
utilities to charge more for renewable
power bought at above-market prices (and
letting consumers bear the brunt of the hikes),
the nation has preferred to keep the price of
power artificially low. That means that utilities
have shouldered the burden, operating at
a loss and trusting in a government guarantee
to eventually pay them back. Sources say the
sum of this " tariff deficit " has ballooned to
more than €16.5 billion since 2000.
Then, last year, faced with an economic
crisis and buckling under an overall burden
of debt, Madrid drastically cut spending and
implemented austerity measures that included
slashing renewable subsidies. On Christmas
Eve, the Industry Ministry announced it
would slash PV solar subsidies between 10%
and 30% for existing projects until 2014-or
€3 billion over the next three years.
PV backers, including foreign private equity
groups and specialist funds, are outraged
by the possibility that cuts will be imposed
retroactively (on plants built before 2008).
Filing lawsuits, they say government's " sudden
reversal in policy " breaches long-term
contracts, and it could drive many of them out
of business. Legal challenges have already
been filed by the regional authorities of Extremadura,
Murcia, Navarra, and Valencia;
at least 15 international investors, who have
pumped more than €4 billion into Spanish solar
PV projects, are also seeking reparations.
European Commissioners Guenther Oettinger
(for energy) and Connie Hedegaard
(for climate) have also chimed in about the
cuts ordained by Royal Decree 14/2010 and
approved by the lower parliament earlier this
year. They warned that " forward-looking
changes [to tariffs] may be understandable
and necessary, " but that the European Commission
" will not accept retroactive amendments. "
Further, they argue, the nation's cap
on the number of production hours when
solar generators can earn above-market rates
adds to a perceived risk of investing in renewables.
" Without stability and predictability,
there will be more risk of delays, " the
commissioners wrote to Industry Minister
Miguel Sebastian on Feb. 22. " You must not
forget that the negative consequences for investors'
confidence from retroactive changes
in the economic conditions of one type of
renewable facility may spread and produce
34
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similar effects for other types of facility in
other countries. "
In March, Industry Minister Miguel Sebastian
promised PV investors his department
would " find solutions to prevent irreparable
damages " to the sector. Key participants are
hopeful: In July last year, the government
managed to reach an agreement with the wind
power sector under which it would cut top-up
rates to wind producers by 35% until 2013-a
measure that could save it €1.3 billion.
In the last week of March, Reuters reported
that Spanish energy regulator Comision
Nacional de Energia (CNE) had suspended
subsidies for 350 PV systems alleged to have
been providing fraudulent power production
figures. PV Tech quoted the Spanish Renewable
Producers Association as saying that
owners of as many as 9,000 of Spain's 55,000
registered PV systems could be questioned
(most, for technical issues dealing with registration,
it claimed). CNE had drafted a bill
to prevent solar fraud in January 2009 after
some plants were exposed for receiving subsidies
without actually generating power.
Coal Use Contracts, Natural Gas
Use Expands
The rise of renewables in Spain has increased
natural gas use and, as expected, constricted
coal use. Spain-a once-thriving coal exporter-in
recent decades has turned to importing
nearly 73% of its supplies, mostly from
South Africa, but also from Indonesia and
Russia. About 90% of all coal is used to generate
electricity, producing 25,851 GWh-or
about 9% of total generation. This compares
with 74 TWh of coal-fired power produced in
2007, which made up almost 24.8% of total
generation.
Coal use, as frequently explained by industry
analysts, has been affected by pollution
requirements and competition with
natural gas. Electricity industry association
UNESA claims that coal-fired power plants
in Spain have an average efficiency of 37%
and emit 930 kg of carbon dioxide/MWh,
whereas combined-cycle gas turbines are
52% efficient and emit 365 kg of the greenhouse
gas per MWh. That makes coal generation
expensive to operate under the EU's
cap-and-trade program. Other reasons for the
drop are that coal plant operators have had
to take plants offline to abide by increasingly
rigid EU directives, and the operation of coal
plants that are used to supplement hydro is
dependent on hydrological conditions.
This is not to say that the sector will disappear
altogether. Spain's Prime Minister José
Luis Rodríguez Zapatero, who comes from
the coal heartland of León, in October 2010
won the European Commission's approval to
subsidize-but only until 2015-utilities that
POWER | June 2011
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POWER June 2011

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