Spain's Solar Experiments Offer Useful Policy Lessons

Yesterday’s NY Times article on Spain’s solar policy experiments provides an interesting and balanced look at the challenge of using deployment mechanisms to develop markets for renewable energy technologies.  

...the Spanish government, eager to fulfill its commitments to renewable energy, guaranteed generous subsidies for any company that met its aggressive deadlines.

While the ministry expected a steady stream of investment, it got a flood, accounting for more than 40 percent of the world's total solar installations last year. Forced to revise the subsidies -- known as feed-in tariffs -- that it used to spur photovoltaic power last fall, Spain became one of the principal causes of the downturn in the solar industry. And its faulty regulations have become a watchword for how government renewable-energy programs, poorly conceived, can go awry.

On a very granular level, the Spanish experiment provided key lessons for Feed-in Tariff (FIT) advocates to incorporate into future FIT policies and proposals, related to cost containment, overheating markets and other issues.   These were well-covered in the Times article. 

From a broader perspective, there are also lessons that energy policymakers can draw from the Spanish experience.  While we've covered them in previous posts on this blog (and NRDC fact sheets), it can't hurt to repeat them.  We believe deployment mechanisms should be designed to accomplish the following:

  • Encourage a diverse portfolio of renewables
  • Drive private investment and long-term planning through clear, stable and lasting incentives
  • Respond to market conditions
  • Minimize ratepayer/taxpayer impact
  • Phase down for maturing renewables to ensure innovation, cost reductions and an ultimately sustainable (non-subsidized) market

We continue to advocate for this strategic approach to federal deployment mechanisms at NRDC (while recognizing the unfortunate need to not make perfect the enemy of the good).

Additionally, the article surfaces a few other interesting questions related to innovation, technology and deployment, most of which I have no real answers to (but am happy to pretend otherwise).

Cost vs. pace in a carbon-constrained world:  Bringing a technology from lab to market can take decades.  Conducting multiple research projects in parallel, funding several demonstration projects at one time, and ramping up subsidies to increase demand will certainly move a technology to maturity more quickly, but the costs and inefficiencies (from failures, overlapping efforts, etc.) can be significant.  With a warming planet, and the need to rapidly scale solutions and technologies that can dramatically reduce emissions, what is the balance between pace of deployment and the cost of these programs?  And if we focus on the former, will we be able to invest in future as heavily or aggressively in next generation technologies as we need?  The answer to either likely depends on who you ask, but these are important questions that do need to be raised when developing clean energy policy.

Short-term and long-term costs and benefits: While competing reports have reached very different conclusions, the long-term cost of the Spanish policy is expected to be well into the tens of billions of Euros ($26.4 billion in total payment commitments per this Greenwire piece in August).   To a great extent, this was a result of a poor FIT design (although the FIT is, by nature, an expensive proposition, guaranteeing an investor-friendly return on what is typically an expensive investment with a long pay-back period).  However, this article also provides a legitimate counter to arguments about cost, arguing that the Spanish economy and labor market received a boost from this approach. 

The most robust Spanish solar companies survived the downturn, have restructured and are re-emerging as global players…

…the solar industry gave Puertollano something of a face-lift and, potentially, a new economic future. Research institutes there are developing cutting-edge technologies. Unemployment, though now up around 10 percent, has not returned to the 20 percent figure. The city is home to a number of solar businesses: a new 50-megawatt thermal-solar plant owned by the Spanish energy giant Iberdrola created hundreds of jobs.

Germany has long argued that, from a macro-economic perspective, its FIT is a net-positive for the German economy, and the Center for American Progress released a recent report showing how Germany's policy have positioned it to become a leader in wind and solar production.  Certainly NRDC’s aggressive support of a strong carbon cap and RES, along with other clean energy policies, is due to our belief in the long-run economic, competitive, security and jobs benefits from clean energy.  But in the case of expensive deployment mechanisms, especially FITs, balancing cost and benefits can be more challenging.  

Short-term boost or long-term priority:    Deployment policies such as FITs are powerful mechanisms that, if designed with a rich enough rate, can immediately give a boost to a struggling new technology, and lead to a sudden surge in investment, great press, and early public support. But it is also vital to focus on the development of long-term, sustainable markets, which can stand on their own without subsidies.  Unfortunately, this requires patience, foresight and a long-term political and societal commitment that can give the clean energy investors and companies long-term policy certainty to scale innovative technologies past challenging market and non-market barriers.  This is never easy politically, but judging by China, Spain and Germany, eminently doable.      


Ultimately, deployment mechanisms are difficult to do, and can lead to supercharged markets, or none at all if developed poorly.  However, the bad experiences of individual countries should not be used to tarnish the concept – deployment mechanisms have their place in a holistic renewables strategy, designed to boost demand for technologies stymied by pre-existing barriers to their deployment, and reduce the cost of these technologies through learning effects. We can’t shy away from policy experimentation as we seek to build a new clean energy economy, but we also must be cognizant of long-term positive and negative impacts from aggressive innovation and deployment policies.