Spain, you might have heard, is a sunny place.
Strangely, the designers of Spain’s early renewable policies did not realize this. They established a feed-in tariff, in which utilities have to buy all generated renewable electricity at a fixed price. They set the price based on German policy. But Spain, remember, is sunnier. And the cost of solar power was plummeting. The cost to utilities grew all out of control.
The Socialists pulled off the first walk-back in 2010, when they limited the feed-in tariff to the first quarter-century of a plant’s life and tossed in a €0.55 per megawatt-hour grid access charge. They were sued, but the investment tribunals found for Madrid.
Then Rajoy gets elected. Rajoy’s gotta Rajoy, and subsidies had hit €3.5 billion, so in December 2012 he reformed the system again. He repealed the feed-in tariff, but made the repeal retroactive. Combine that with a 7% electricity tax, and he managed to push a bunch of solar producers into the red. Spain got sued again, but this time the investment tribunals forced the government to cough up damages.
Lest you think that the People’s Party would relent, they went yet one better in 2015 and slapped a tax on anyone who installed solar panels. OK, not technically a tax, technically a grid access fee. But effectively a tax. In addition, the law banned anyone with solar panels over 100 kW from selling electricity at all.
But now Rajoy is out and Pedro Sánchez is prime minister. Moreover, solar power costs less than one-sixth of what it did when Spain began subsidizing it. Noises are being made about repealing the sun tax. At the very least, the sunny country might let market forces rip. Solar costs are down 41% since 2013. (See left: the dotted line is 20¢ U.S. per kilowatt-hour.)
Still, low costs can be a problem for solar producers, especially in Spain, where most renewable producers need to sell on the spot market. When the sun is shining, solar installations can bid the cost down to zero if there are enough of them. They can even drive it negative, if conventional producers are willing to pay customers to take their electricity in order to avoid spinning down their plants.
So market forces will not be enough without a market redesign making it easier for solar producers to sign long-term contracts with off-takers. It is not merely a matter of removing the burdens the People’s Party placed on the industry. I have no idea how much thought the Socialists have put into this problem or whether their rickety surprise coalition is prepared to enact reforms.
We can hope.
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