Slashed tariff will cut Spanish PV market by half

23 Nov 2010

Reduction in support for photovoltaic installations in Spain is described as "brutal" by a local industry association.

An industry association representing photovoltaics companies in Spain, ASIF, has blasted a decision by the Spanish government to cut the country’s feed-in tariffs in support of solar installations.

On November 19, the government’s Council of Ministers approved new regulations covering renewable energy production – with the main aim of reducing the huge costs to the Spanish state of supporting the technology. While the royal decree will see cuts of only 5% in financial support to small, rooftop installations, support for medium-sized installations will be cut by 25%, and subsidies for large-scale ground-mounted systems will be slashed by 45%.

ASIF immediately rejected the new plans, saying that the “sudden and brutal” action would likely halve the size of the solar market in Spain, from 500 MW per year to just over 250 MW. The most recent forecast by the European Photovoltaic Industry Association (EPIA), made earlier this year, had anticipated a market of 600 MW in 2010 and 500 MW in 2011.

The latest government action is a response to the ill-thought-out subsidies that created an unsustainable PV boom in the Mediterranean country during 2008. EPIA’s figures show that the over-generous feed-in-tariff (FiT) support prompted the Spanish PV market to grow from 560 MW in 2007 to more than 2.6 GW the following year.

Recognizing that such a boom could not be supported in the longer term, the government then introduced a cap on installations, and in 2009 the market shrunk to a virtual standstill (EPIA’s figures show that 69 MW were installed).

€600 million savings
In a statement announcing the latest changes, the Spanish Council of Ministers said that the measures “ensured a reasonable return on investment, and provide certainty for the future”, adding that, over the next three years, the reduction would save the government more than €600 million.

Although that might sound like a significant saving, according to a report at Bloomberg News it will do relatively little to help plug a large financial hole in the Spanish electricity system.

The Bloomberg report says that annual subsidies for renewable power in Spain were close to €5 billion in 2009. The approximately 50,000 PV installations in the country are said to have earned around half of those subsidies, while delivering only 11% of Spain’s renewable energy. The resulting cost of the various subsidies on offer has meant that, since 2005, Spanish consumers have paid an artificially low price for their electricity, with the shortfall made up by loans from large utility companies.

According to ASIF, Spain ranks fourth in the world in terms of PV manufacturing output – after China, Germany and Japan – with an annual production capacity of around 1 GW. The association is worried about the prospects for the local industry if its prediction of a 50% drop in domestic demand proves to be correct. It points out that the industry shed some 30,000 jobs after the cap on installations was introduced in 2009.

While the relatively small cut to subsidies for rooftop installations will be welcome news, and will protect panel installation jobs, much of the small-scale, rooftop market for panels is likely to be satisfied by lower-cost Chinese suppliers.