North Coast Solar Stocks

April 27, 2009

Boom and bust for Spain’s solar industry

Filed under: none — Tags: , , , , — Jason @ 10:07 pm

4/27/2009 10:07:53 PM

MADRID, SPAIN: Although Spain’s solar market was once at the forefront of worldwide activity, a change in its feed-in tariff subsidy has sent the sector into a downward spiral, leaving its future in the balance as solar manufacturers cut production and staffing levels. As a result, the global solar market faces a significant setback instead of making the necessary contributions towards the EU’s 20-20-20 targets.

It is a well documented fact that subsidies can greatly increase the uptake of new technologies, such as solar photovoltaics (PV), but that changes to subsidy regimes often damage investor confidence and cause boom and bust cycles. Spain’s feed-in tariff is no exception. Now that a 500MW cap has been introduced alongside reduced subsidy levels for Spanish solar PV projects, the country’s market has contracted significantly and only expects to install 375MW of solar capacity in 2009, against 2,500MW in 2008 (out of a total of 5,500MW worldwide).

The European Photovoltaic Industry Association maintains that government support programs such as feed-in tariffs provide investors a degree of security, as PV modules have a shelf-life of 25-40 years, yet economic payback occurs in a mere 12 years. Be that as it may, the development of Spain’s much-admired solar industry is now under threat and domestic producers are likely to respond by having to export surplus capacity to growing markets in Italy, Greece and the US.

On the plus side, the current global economic turmoil has forced a reduction of 10%-20% in PV module prices, which might suggest that the effects of the technology adoption learning curve have now set in. It is, however, equally likely that an oversupply of modules brought on by the current world financial situation has further depressed prices. Increased efficiency gains – notably in the cost of thin film production – are also providing some mild relief to the country’s embattled manufacturers. However, neither price correction nor efficiency gain is sufficient to get Spain’s paralyzed solar market on the move again.

More importantly, because Spain’s market accounts for 45% of the world’s solar market, the latter’s pledge that it can provide up to 12% of European electricity demand by 2020 is looking increasingly dubious. In the fight against climate change, it appears that Europe can no longer count on the same level of contribution from the solar camp, leaving wind power generation and energy efficiency measures to meet the shortfall and attempt to deliver the EU’s 20-20-20 ambitions.

In the absence of the right framework conditions or indeed a subsidy level that is able to bring the technology to commercial parity, it seems that Spain’s feed-in tariff was an ambitious but insufficient condition to drive a sustainable mass market transition to solar PV.

Part of the responsibility for the demise of Spain’s solar industry lies squarely with the EU: the EU ‘green’ policy landscape lacks credibility and provides inadequate regulatory frameworks for the pan-European deployment of renewable technologies. Current EU policy responses have failed to set out targets past the original Kyoto timeframe and have been unsuccessful at providing a credible and sustainable carbon price, choosing instead to hand pick ‘winning’ renewable technologies. Having neglected to appropriately place renewables within the context of the wider European energy debate, 20-20-20 sounds more like a political slogan than an energy efficiency policy.

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