Spain Is Betting On Renewables Again Now They Are “Cheap”

Spanish renewablesRenewable projects

Five years after stopping the auctions for new renewables installations, the government is again firmly betting on wind and solar energy. From now to June, the Energy Ministry will hold an auction for a total of 3.000 Mw. The first of those is expected to be for a number of new allocations, with the exception of a small previous allocation of 500 Mw in 2015.

The importance of this upcoming auction is without question if we take into account that installed renewables power in Spain (excepting hydraulic) is 31.216 Mw. So in other words, the new installations will increase this energy park by 10%.

And the industry is not concealing its expectations ahead of this green energy ‘revival‘. The fact the auctions were halted put an end to what was truly a golden age for the sector. Let’s not forget that between 2005 and 2015,  installed wind energy power in Spain went from 10.000 to 23.000 Mw, while solar photovoltaic rose from 63 to 4.800 Mw and solar thermoelectric from zero to 2.300 Mw.

The stoppage imposed on installing new renewables (with premiums, of course) and the reduction in the premiums to current levels, caused the complete collapse of the solar and wind equipment industry in Spain. To such an extent that the business in Spain went into a total slump, leading to a drop in jobs from 44,000 in 2008 to 22,000 currently.

And the decline was not bigger only because Spanish companies quickly expanded overseas and managed to consolidate their presence in various countries. For many of them now, almost 100% of revenues is generated outside Spain, as in the case of Gamesa.

Of course the government cannot be blamed for what happened. Premiums were soaring to unsustainable highs – 7.2 billion euros in 2013 – and so a halt had to be made to stop the bill from increasing further.

The fact that premiums were running amuk meant that in 2012, when measures were started to be taken, the tariff deficit was over 24 billion euros. This figure is reflected in the electricity bill and, as a result, has contributed to making Spain one of the countries in Europe with the highest electricity prices.

So why has the government decided to bet once again on a type of energy which has caused such an imbalance in the system? The first reason is that the renewables are not really to blame for what happened. At the end of the day, the renewables (which don’t use fuels that need to be paid for) enter the system at zero cost and avoid having to import primary energies into Spain.

If they became a burden, it was because an inappropriate subsidies system was implemented (in the US, only the installation is subsidised with tax breaks). Furthermore because massive installation began when their equipment was very expensive. And if the government has now decided to revive this type of energy, it’s primarily because it needs to comply with the commitment made to Europe to generate 20% of all its energy needs from renewables sources in 2020. Our ratio is currently around 15.6% and there is not much time left, only three years, to reach the target.

But the main reason why the government is advancing in the direction of renewables is that they have now become so cheap they are fully competitive with fossel fuels. At least that is what several organisations and institutions say, amongst them Lloyd’s Register.

The equipment, from solar panels to wind turbines, has become so efficient and so cheap that in some countries they are installed without subsidies of any kind. In fact, the new installations which emerge as a result of this year’s auction will cost the government in terms of premiums no more than about 255 million euros. This is a negligible figure if we compare it with the premiums currently paid, around 7 billion euros, for the renewables in operation as a whole.

About the Author

Fernando Barciela
Fernando Barciela has been a regular collaborator for Spain's leading daily El Pais' business section since 1994. He is also a regular collaborator on foreign policy. For Grupo Consejeros he interviews the top executives of Spain's listed companies. He was a correspondent with Diario de Noticias, Portugal's leading daily newspaper, in 1987-2004. He has a degree in Business Science and Journalism from the Complutense University.