Solar-Power Subsidies Collapse in Spain

Accounting for over half of the world's solar energy in 2008, Spain's government subsidies have now all but dried up, creating a renewable-energy collapse with rippling effects into the global solar-production industry. What a difference a year can make. The continuous flux in the global economy has caused the Spanish government to slam its doors on previously generous funding of renewable energy projects. But what makes matters worse is the far-reaching effects of Spain's clamp down.

Factories world-wide that previously ramped up their production of solar-power components found the demand for solar panels had plummeted, leaving a glut in supply and a significant drop in prices. Job cuts followed.

Spain's solar ambitions started as an outgrowth of its earlier push to become a global player in wind power--something it succeeded at. By offering generous long-term support for wind power, Spain became a world leader. Companies such as Iberdrola SA (MCE:IBE) and Gamesa Corp. (MCE:GAM) catapulted from their home markets to the U.S.

Wind energy was a cheaper renewable option than solar, so the Spanish government sought to make solar power more attractive by increasing subsidies, just as other countries, particularly Germany, were scaling back support.

As a result, Spain's solar capacity last year increased to 3,342 megawatts from 695 megawatts, the size of a coal plant, a year earlier. Government subsidies for solar power jumped to €1.1 billion ($1.6 billion) in 2008 from €214 million in 2007.

But solar is an expensive technology, moreso than wind--and requires a lot more land. The cost proved to be too much. Solar power in Spain "was a financial product, not an energy solution," says Ignacio Sánchez Galán, chairman of Iberdrola.

Faced with the unraveling world economy and a deepening budget deficit, the Spanish government late last year reduced the money it paid for solar electricity and capped the amount of subsidized solar power installed each year at 500 megawatts. Spain's solar-power capacity has actually shrunk as a result.

Spain is providing important lessons for the U.S., where lawmakers are engaged in a debate about how to support renewable energy. Boosters of clean energy, including President Barack Obama, have pointed to Spain as a success story showing how government policies jump-started renewable energy, created new industries, and helped the environment.

Source: The Wall Street Journal