Energy In Crisis: Spain Slashes Renewable Energy Subsidies

Five years ago, Spanish farmers realized that they could make more money harvesting the sun than they could planting crops. Shortly thereafter, fields of sunflowers gave way to bright pastures of solar panels. To aid this transition, the Spanish government created a number of renewable energy subsidies; subsidies, that were critical to the sector's growth and development. Sadly, it appears that many of the subsidies that spurred the development and expansion of Spain's renewable energy markets are now in jeopardy. This past week, the Spanish government announced that subsidies for new, ground-based solar parks will be cut by at least 45 percent. Additionally, state support for rooftop installations will also fall by 25 percent. Unsurprisingly many within Spain, as well as Europe's renewable energy sector, have responded with harsh criticism, calling the plan extremely short cited. Recent reports indicate that by 2020, renewable energy could be less expensive than conventional as well as nuclear power. Unfortunately, both conventional and nuclear energy sources continue to enjoy annual subsidies worth billions of euros. Still, others have come out in support of the changes, arguing that tariff reductions make financial sense, particularly because renewable energy sources have failed to compete economically with conventional power (or contribute on a scale necessary to make them a reliable contributor to the European power grid source). Supporters of the rollback refuse to accept that the government should simply look at renewable energy expenses as sound investments, despite the fact that a rise in the cost of oil and other conventional inputs could significantly sway the equation. So who is right?

Despite being challenged, Spain's government continues to argue that the cuts to renewable energy subsidies reflect the current inefficiency of solar technologies. The government acknowledges that the solar sector is innovative and dynamic, yet quickly points out that the renewable energy sector currently accounts for only 3 percent of Spain's energy production. After the announcement, labor and trade organizations voiced some of the most aggressive frustration. For example, the founder of one of Spain's largest solar panel manufacturers that employs over 1,000 people, denounced the rollback. In his words, the cuts have put nearly 10 billion euros of renewable energy projects on hold, making it nearly impossible for renewable energy manufacturers and developers to obtain credit from banks that supports investment. These changes, particularly the contraction within credit markets used for renewable energy manufacturers, have forced Spain to become a highly inconsistent photovoltaic developer. In his words, as well as many of other European trade associations, the real issue is not simply the questions that the tariff change brings, but rather the frequency of the policy changes, as well as the uncertainty that this frequency creates. Financial institutions that support development, particularly in Europe, remain highly concerned regarding about the security of their investments. Few if any lenders are prepared to lend to renewable energy manufacturers.

In addition to the uncertainty, the lack of clarity regarding Spain's direction within the renewable energy sector is also impacting jobs. In 2008, the renewable energy manufacturing sector employed 40,000 people. Many of these individuals supported the installation of the Spanish solar fields that saw a record breaking 3,000 megawatts of solar capacity installed. Now that new investments have ground to a halt, the 2010 workforce consists of just 13,500 workers. Many within the renewable energy sector in Europe, as well as globally, continue to blame big conventional energy companies for pressuring governments to defend them against competition from renewable energy. Many more continue to argue that big energy companies are responsible for pushing the Spanish government towards austerity measures in the photovoltaic sector, primarily because the market is weak, making it an easy fragmentation target. Still, answers to the larger issues remain unclear. Will other European nations follow Spain, particularly those nations that recently faced financial crisis and need to increase their liquidity while decreasing liabilities? Should we accept the argument that renewable energy manufacturers and markets be evaluated based on their long term potential, rather than the percentage of outputs that they are currently contributing to? Finally, what does the future for Europe, as well as the world's renewable energy sector look like in 5, 10, or 20 years?