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Spain Gets Smart on Green Subsidies


Spain has become the latest European country to slam the brakes on green subsidies. Late last decade, the country drank the green kool-aid and poured billions of dollars into expensive solar and wind energy projects. These investments did their job, and then some: solar and wind farms expanded far past government projections, and the country was lauded by greens across the world as an example of successful government suport for green technologies.

But building these farms was the easy part. As Spain has learned, it’s much harder to make a profit from green energy projects than to build them. For the past few years, Spain has run what is called a tariff deficit, where the costs of generating power are greater than the revenues generated by selling that power to consumers. The government has tried to narrow the gap between costs and revenues by limiting the preferential treatment given to the more expensive solar and wind power producers, but these programs were largely unsuccessful. Now it’s looking to take more drastic action and is planning to dramatically scale back its subsidy program. The WSJ reports:

Under a broader energy-sector overhaul to be announced as early as June 21, the government will reduce subsidies to renewable-energy producers by 10% to 20%, [sources] said. […]

Deputy Energy Minister Alberto Nadal told representatives of Spanish and foreign banks late last month that the government was planning to cut the level of government-guaranteed revenue for renewable-energy production, a government-guaranteed payment that effectively acts as a subsidy because it is far above market rates.

Solar companies are expected to be hit especially hard, as they are already struggling with debt and are relying on these subsidies to stay afloat. Many will likely close altogether.

Once again, greens are learning that their preferred technologies just can’t compete without heavy government subsidies. Building green tech is just the first step; the real test is whether or not renewable energy can compete with other energy sources and turn a profit. Solar and wind are failing that test in Spain, at great cost to Spanish taxpayers who have enough on their plate without having to prop up a chronically failing industry.

Of course, Spain is far from alone. Hopefully policymakers in other countries will see what’s happening in Spain and begin to think critically about their own programs.

[Broken solar panel image courtesy of Getty Images]

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  • ljgude

    As a retired academic who has tried his hand at business with mixed success I have noticed that academics are attracted to nifty ideas like renewable energy because they appear to be workable in theory. In fact that is our job as academics – to do our best to get the theory right. Businessmen, I have learned the hard way, have to get a whole sequence of often quite mundane things like ‘due diligence’ right before they make a profit. Wonks is a word for academically minded people in government…I think you can see the rest.

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