With foresight and development of proactive policies, Spain has become a pioneer in the Photovoltaic (PV) solar market. Incentive programs supported by the Spanish government created a vibrant solar economy beginning in 2004, well ahead of most other countries around the world. These programs were highly successful in building momentum for solar energy in Spain, but also provided the impetus for technology innovation that will improve efficiency of solar systems around the world, and important lessons about finding the appropriate balance of incentives to ensure that the market is sustainable.
By Jesse Tippett, Albert Fong
Setting the Stage
Spain set the stage for its phenomenal PV solar market growth in 2004, when the country? Ministry of Industry began developing the Feed-in Tariff (FiT) rates, specifying the requirements for renewable energy projects and setting goals and timelines for installations (see the sidebar ‘Timeline’).
Unlike in the U.S., where the federal government offers diverse incentive programs but leaves it to the states to mandate renewable energy into their energy portfolio mix, the Spanish Ministry of Industry acts as the central agency for all aspects of developing the solar market. This approach was much more straightforward, providing companies that wished to enter the market with a clear picture of how the market was being crafted and the information they needed to develop a successful business plan.
Additionally, because the FiT was backed by the government, the incentive program was viewed as a very low risk as the government is traditionally a very credit-worthy customer.
Quick Solar Growth
The development of the solar regulations and incentive programs was relatively quick, in comparison to the experience by other countries for a number of reasons. First, the country, as well as its utilities and businesses, shared a goal to become as energy independent as fast as possible because of its limited coal and natural gas resources. Also, the government believed that incenting growth in the solar market would create jobs, strengthen the economy with stable investments and set the stage for the country to become the heart of innovation in solar technology.
In 2007, the Spanish government raised the upper limit on the size of the installations that qualified for the FiT from 100 kW to 10 MW, making it one of the most generous programs in the world, which was one of the most generous tariff offered by any country in the world. The Ministry of Industry believed this rate would help it reach a goal of producing 400 MW of electricity from photovoltaics by 2010. This FiT was incredibly successful in attracting investment in PV solar generation facilities because the returns on investment were so great. The program was quickly oversubscribed, and in fact, reached the 2010 goal by the end of 2007.
Growth in the Spanish PV market reached a crescendo in 2008, with the incentive program resulting in more than 2.5 GW of solar power being added to the grid. This quick growth resulted in a quintupling of capacity in the country and accounted for more than half of the solar power installed globally that year. With so much capacity in the ground, Spain became the second-largest solar producing nation, following only behind Germany. In addition, 12 of the top 25 largest generation facilities are located in Spain, including the very largest--60 MW plant in the city of Olmedilla de Alarcn (see ‘Top 25 Largest PV Installations Worldwide’).
Downturn in Solar
But, in hindsight, while the program established a great model for other nations wanting an increase in renewable energy infrastructure, it also could be considered a victim of its own success. As quickly as the solar PV market heated up in 2007 and 2008, it cooled down in 2009. The generous FiT established two years earlier was not sustainable, so the government instituted new regulations that cut the FiT to 0.32 euros/kWh for on-the-ground facilities. The regulations also established quotas for new facilities during the year, limiting roof- and wall-based systems to 267 MW and on-the-ground facilities to 233 MW. While the totals for 2009 are not yet tallied, it is estimated that only about 100 MW of ground-mounted facilities have been installed.
Because the market was so lucrative in 2008, a number of companies and landowners entered the business to take advantage of the guaranteed returns without the proper knowledge of the solar industry. Not all systems installed during the heydays were engineered properly, nor did they make the most efficient use of technology or employ high-quality equipment. As a result, some facilities have gone out of service, while there is concern that others will not be able to be sustained over the long term.
Opportunity in Difficulty
The reduction in the FiT is expected to strengthen the market in other ways in the long run, though. The FiT is still great enough to enable companies to achieve a decent return on their investments. But it will now require those companies to be more competitive in the type of technology they deploy. In addition, this competition will spur greater innovation, which will improve solar infrastructure efficiency, incentive growth of manufacturing capabilities and result in better pricing.
Also, the Spanish government is now looking to diversify the solar market, expanding from a focus on solely PV to more development of Concentrating Solar Power (CSP) facilities. FiTs are being evaluated for both types of solar facility, seeking incentives that are competitive for PV while allowing CSP to continue to grow. However, even several months into 2010, there is still no consensus on how many MW of solar energy the country will have installed this year. In fact, at a recent U.S-Spain renewable energy conference, there were projections that only a couple of hundred MW would be allowed, and even that amount may be optimistic.
One thing is clear going into the future: Spain is hoping to foster a smaller, but steadier build out of solar projects. There is no longer room for such a large boom in the business, as the country experienced between 2004 and 2008, because those levels are clearly not sustainable. However, it is believed that continued steady single-digit growth from year to year will foster more competition, better use of technology and some consolidation that will strengthen and mature the market.
Because unemployment remains high in Spain, there is a lot of pressure, also, to continue fostering job growth. For that reason, it is widely believed that the government will support more CSP installations, with which come more local construction, manufacturing, and operation and maintenance jobs.
A Pioneering Approach
Despite the ups-and-downs over the past three years and the adjustments to the FiT required to control excessive growth, Spain can truly be considered a pioneer in the PV solar market. The policies instituted to develop the solar market have been copied by other countries seeking to jumpstart their renewable energy programs.
In addition, the extensive growth in the Spanish PV solar market has given manufacturers, project developers and operators of solar generation facilities a wealth of experience that is valuable for expansion into other markets around the world. Because Spain created a vibrant market for solar energy, much of the manufacturing and engineering know-how is home grown. These companies now have the opportunity to capitalize on the valuable experience they gained in Spain in order to globalize their business models. So, as other markets--such as the United States, Australia and India--begin their ascents into solar power production, there will be a lucrative opportunity for Spanish companies to share their knowledge and assist in these developments. Already, Spanish companies are branching out with wholly owned subsidiaries, acquisitions and partnerships in these nascent markets.
Building on a Framework for Success
While Spains model is clearly not perfect, there are a number of lessons that can be taken away by the foresight of this pioneering nation. These lessons include:
● Consider long-term sustainability: FiTs are a proven way to jumpstart solar innovation and installation of facilities, but the tariffs must be set in a way that not only incents initial investment. They must enable the business to be sustained even after the incentives expire.
● Plan for steady growth: Mechanisms must be put in place to ensure that procurement doesn? exceed stated annual goals. By doing so, a country can facilitate steady growth of the solar market, eliminating booms and busts that create instability.
● Incentives = Innovation: Countries that are serious about establishing a renewable energy marketplace can be the hotbeds of innovation, enabling companies there to be leaders in the field.
Spain’s solar energy policies and FiT structure clearly worked in bringing more renewable energy resources to the country, creating jobs and enabling the country to be a solar innovation leader. The policies developed by Spain and the real-world marketplace experience over the past five years can serve as a clear guide for other countries as they consider what incentives will work best to foster solar investment.
Jesse Tippett is Managing Director and Albert Fong is Chief Project Engineer, both at Albiasa Corp (http://www.albiasasolar.com/).
For more information, please send your e-mails to pved@infothe.com.
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