Spain Slashes Solar FiT didn't Fix the Problem

Spain is having a solar FiT.

The Spanish government followed through on its plan announced last June to cut the feed-in-tariff above market premium paid to solar developers.  Being a skilled politician, Spain’s Industry Minister Miguel Sebastian told the solar producers then that he planned to cut subsidies to both new plants AND existing plants by almost 40 percent.  This, of course, sent the solar crowd into a well—FiT since their profitability and financing had been based upon the subsidies from the government.

Despite the controversy both the Government and the Industry knew the house of cards would eventually fall since the current system was unsustainable.  Facing a difficult election by May 2012 the Spanish Government did not want to raise utility rates to consumers to cover the roughly 5 billion Euros in annual FiT subsidies.  So the Government squeezed the utilities to hold off on rate increases.  Iberdrola SA and Endesa SA were forced to cover the shortfall effectively lending money to the electricity system and driving up their debt. Meanwhile, the Government is on the hook for the subsidies and faces a 2013 deadline for eliminating both the debt and the FiT obligation.

Photovoltaic plant developers already hit hard by the encroachment of lower priced Chinese PV panels taking their market share furiously lobbied the government for months to honor existing project commitments under the law and guaranteed above- market rates for 25 years.  But the industry ministry kept the pressure on and recently said it might restrict the hours existing PV projects could earn FiT subsidies.

The “compromise” announced cuts the FiT subsidy by 45% for new ground based solar projects but only 5% for roof top projects.  The decision spared—for now—the existing projects from a FiT cut but did limit their recovery period to 25years, according to a Bloomberg report.

FiT subsidies for renewable energy projects totaled 5 billion Euros in 2009 driving the cost of power to Spanish homes above the revenue charged to consumers each year since 2005. Today 50,000 solar-panel installations receive more than 50% of the subsidies while generating 11% of the electricity sold.

The reduced FiT for new plants will save the Spanish electricity system 600 million Euros meaning this reduction in the FiT was as far as the Government felt it could go—for now, but the subsidy will still haunt the Spanish power system for years to come as it tries to dig itself out of the FiT hole the government dug for it in an uncertain and volatile economic climate.