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19th Aug 2018

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Spain solar power clouded by government U-turn

  • Part of the problem stems from big utility companies whose market share was threatened by solar and renewable energy. (Photo: Robert and Cathy)

If it weren't for the support of his family, 29-year-old year Pere Guerra Serra would be destitute.

The Harvard graduate launched a photovoltaic installation business with his brother in 2002 and convinced his father a decade ago to invest his life savings in a 2.1-megawatt solar park near the Catalan city of Girona.

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  • Many used their homes as collateral in their efforts to shore up the bulk of Spain's solar power capacity (Photo: EUobserver)

At the time, Spain was among the top producers of solar energy and attracted renewable energy investors.

That ranking has since plummeted following legislation that slashed renewable feed-in tariffs in the lead-up to pro-fossil fuel energy reforms in 2013.

Serra and his brother have since lost their business. And their father's savings are gone.

"We invested in something we thought was [ideal for] a modern European country, we invested in the hope of doing something good for society. And we fail to see what we did wrong in order to deserve all this", Serra told EUobserver.

Serra is not alone. He, along with thousands of other families in Spain, took out large loans in a government-led renewable energy scheme that later backfired.

Many used their homes as collateral in their efforts to shore up the bulk of Spain's solar power capacity. Spain had only 690 megawatts (MW) capacity of solar photovoltaic (PV) panels in 2007.

The cash-strapped Spanish government had turned to private investors to help meet its EU renewable energy targets. It guaranteed subsidies in an offer that attracted the wealth of 62,000 families.

"You had a law, a written contract by law, by the Spanish administration, and national entities actually advertising the use of banking leverage, which is exactly what most of our 62,000 families did in the package of 2007", said Serra.

Spain's megawatts (MW) capacity of solar photovoltaic (PV) panels subsequently soared to 3.5 gigawatts. As did total subsidies for solar energy, which rocketed from €190m in 2007 to €3.5 billion in 2013.

The government says that this created an imbalance between the regulated costs and revenues of the electricity system - known as a tariff deficit - of some €28.5 billion or almost 3 percent of GDP, which it did not want to pass on to consumers.

"The main focus of the current government, in office since December 2011, has been to reintroduce financial stability to the electricity system", said Antonio Rueda, a spokesperson from Spain's ministry of industry, energy and tourism.

He said the deficit has stopped, electricity demand is on the rise, and foreign investment is coming back.

"[The] Spanish economy is recovering…with those ingredients Spain will be able to bring household prices down to be on average with those of the EU again", he said.

Others like Greenpeace say renewables are not to blame and that the deficit is rooted elsewhere.

"The main reason is the threat to major energy companies' bulk investments in fossil fuels, which has led to formidable lobbying", said Greenpeace in a report last year on economic recovery with renewables in Spain.

At the same time, Spain was suffering from massive public debt and was forced to accept a large bailout from international creditors.

The economic crisis saw businesses shut and demand for electricity drop in an already oversaturated energy market. By 2013, electricity demand had declined by three consecutive years.

Its domestic consumer electricity prices were already among the highest in the EU. From 2007 to 2012, they rose by over 40 percent, more than any other member state except Greece.

Household prices have started to decrease, from -3 percent in 2013 to -5 percent in 2014.

To claw back the tariff deficit, the Spanish government in December 2010 decided to impose a retroactive cap that limited the feed-in tariff price on renewable energy.

"We could earn 44 euro cents per kilowatt hour from January to September but when the hour cap was on, we would earn absolutely nothing from the feed-in tariff", said Serra.

Meanwhile, banks insisted that households continue to pay back their loans. Savings dried up and businesses were forced to shut.

Part of the problem stems from big utility companies whose market share was threatened by solar and renewable energy. Dozens of gas power plants had been commissioned over the years but saw demand drop as renewable energy increased.

"Competition got very ferocious but when you have overcapacity, a high share of renewables, in crisis that means the market is smaller, suddenly you have a recipe for disaster", said Marina Bevacqua of Greenpeace Spain.

Under pressure to act, the government initiated a wide-ranging energy reform in July 2013, which cut by several billion a year the amount of money for renewables.

The net result is that people now get paid half of what the feed-in tariff had promised.

Sara Pizzinato, general manager at Fundacion Renovables, said it means that Spain is no longer attracting investors in renewable energy.

"Just a few years ago, we were in the top 10. Now we are completely out of the 10 countries in investment for renewable energy", she said.

An Ernst&Young report out in September that ranks 'renewable energy country attractiveness', places Spain at number 25, just behind Thailand and Morocco.

This story was originally published in EUobserver's 2015 Regions & Cities Magazine.

Click here to read previous editions of our Regions & Cities magazine.

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