The Subsidy in Spain Falls Mainly on the…

Ask anyone in the solar field how the government to do subsidies right, and you’d better have a chair handy. Everybody has their own opinion—and is happy to spend a lot of time telling it to you. Not surprisingly, everyone’s opinion is different from everyone else’s opinion.

That doesn’t mean that there isn’t a best answer. If we remove the politics and intransigency (“That’s how we’ve always done it!”) and then settle down for some serious number crunching, I’m sure that a very good program can be determined. To work, it has to: a) cost as little as possible, b)incentivize the right things, c) have some self-termination clause programmed into its code and d) cost as little as possible.

As this blog proceeds, I’ll explore a number of factors that go into a good subsidy program. The first step should be looking at programs that have been tried in other countries and in individual states. Today’s case study is Spain.

If Spain’s solar subsidy program had a motto, it would be “Too Much, Too Fast”. The government declared that it would massively subsidize photovoltaics and solar thermal in the form of Feed-In-Tariffs. The idea was to reach 10% renewable electricity generation by 2010.

Just two years after this program was put into place, 12% of the country’s electricity is renewable. How great is that! Project accomplished two years prior to the deadline and goals over-achieved.

There’s just one fly in the mascara. The Spanish government has spent almost $7 billion in subsidy payments. That’s three times as much as it projected. They just didn’t anticipate that supply would increase (with the advent of thin film manufacturers) while external demand dropped (Germany’s market became less attractive because of demand congestion). They also didn’t expect that a whole lot of people would show up when they announced to the world that they were giving away free money.

The latest scuttlebutt is that the country will drop its feed-in-tariff from 45 Eurocents to about 30 Eurocents, while also dropping its cap for new solar installations from 400 MW to 300 MW. While industry spokesbugs jump and shout that such a move would be disastrous, it still makes for the best solar subsidy in the world.

What does this tell us here in America? Three points:

1. Do your homework. Don’t overpay, bankrupt your treasury and then change the rules.
2. Feed-in-tarrifs are difficult to calibrate and one year’s correct value could be dramatically overpriced for next year.
3. Base the plan on the technology that will be available in the next ten years, not what’s available now. Spain thought they would convince a few people to put silicon on their roofs. Instead, a huge amount of far cheaper thin film went up (why, after all, would you want to spend $4 in installation costs when you could spend $1.50 and still get the exact same price for your product, guaranteed by the government).

If our goal is to put up as much solar as quickly as possible, by all means, let’s do what Spain did. If our goal is to incentivize a clean technology with as little interference in a free market as possible, let’s file Spain’s plan under “G” for Grande ClusterF**k.