Spain’s so-called electricity tariff deficit often makes headlines, but a clear narrative about the cause is still hard to find. My take is that at the root of the problem there is a crazy plant overcapacity, in which renewable energy enjoys a remarkable presence and pulls prices up because of its extremely costly production.
This is so also because previous governments, whether conservative or socialist, took advantage of the appeal among voters of using the words ‘wind’ , ‘sun’ and ‘energy’. But it is the word ‘price’ that is the key, and even using combined cycle plants–euphemism alert–renewable energy production is very, very expensive. When we throw it into the ecological ideology nowadays dominant in the European Union, the result is this terrifying chart (above) about gas prices in the EU and the US. Quite a gap there.
In 2004, the price of gas in the US was higher than in Europe. In 2012, it was four times lower. The main explanation is shale or non-conventional gas.
The Spanish tariff deficit is cash, and it is the cash that the government puts to fill the gap, and it is cumulative and has reached €24 billion or some 2.4 percent of the country’s GDP. Sooner or later, taxpayers will have to cover it with their own resources.
Don’t be mistaken, this affects Spain’s economic productivity, too. It is one step that Spain is making backwards at a moment in which it should be pushing ahead its weight against the euro crisis.