Spain’s Popular Party government has been waging war against one of the world’s most vibrant renewable energy industries in a bid to protect big business interests, argues Ignacio Martil.
Since the ruling Popular Party took power in Spain in 2011, it has introduced a range of legislative measures to undermine the renewable energy sector, which accounts for a third of the country’s energy production. Payments to Spain’s tens of thousands of solar plants and wind farms cost too much, it is claimed. So the government of PM Mariano Rajoy has been slashing them.
The producers of electrical energy using wind – for which Spain is now the European leader – and solar (photovoltaic and thermal) technologies receive payments to distribute the energy they produce onto the grid. These payments – also referred to feed-in tariffs or often, misleadingly, subsidies – are not just provided in Spain, but all countries that foster renewables, including Germany, which has most heavily invested in them. They are paid in this way because, unlike with fossil fuel energy, wind and sun are free (at least for now, we will have to cross our fingers it stays that way) and the maintenance required for wind farms and solar installations is minimal.
Therefore, the cost of producing this energy is determined primarily by the initial investment made in the plant, spread throughout its lifetime, which can exceed 20-25 years. Considering this, it is easy to see how bad any regulatory uncertainty is for investment in renewables. If a feed-in tariff system has a time horizon of 25 years and four or five years after they made the investment subsidies are cut drastically, investors gets caught out and has no way out.
During the past three years, half-truths and outright lies have been spread about renewables that have spread confusion and bewilderment among Spain’s citizens. Furthermore, the opponents of renewables never highlight the benefits. Besides the upsides that are commonly cited, such as the environment and energy independence, others are essentially economic in nature. For example:
Spain’s renewable energy payments are not, as has been suggested, the main reason for the growing gap between the electricity system’s revenue and costs. In fact, the deficit began a number of years before clean energy entered into the Spanish energy mix and when cuts were made to renewable energy producers the deficit continued to increase. There are no verifiable direct relationship between the subsidies to clean energy producers and the rising deficit. Rigorous studies have in contrast showed that renewable producers could receive significant income (between 60 and 75 € / MWh, similar to the price at which electricity is often bought in the wholesale market) at no cost to consumers.
Renewables cheapen the price of electricity. Indeed, by its nature, renewable energy enters the market that sets the price of electricity at zero cost. This is because wind and solar energy cannot be stored, so that a producer cannot obtain any benefit from holding back energy produced from distributing it on the grid, regardless of what income it may obtain at a given period of time.
To understand this issue, tt is necessary to understand a little of how the market sets the price of electricity.
Suppose for a moment, you need 10 kg. tomatoes and you go to the grocers and try to buy the cheapest tomatoes on the day that you will consume them. You find 7 kg. of the Pera variety for 1 € / kg ; 2kg. of the Kumato brand at 3 € / kg. and 1 kg. of Raff tomatoes at 5 € / kg. When you go to the checkout, you will pay for 10 kg. at the price of the most expensive of the three varieties (Raff), costing you € 50.
In the example, the tomato is electricity and the greengrocers, the market where you buy it; the Pera tomato fulfills the role of renewable energy (including nuclear, but that is a matter to discuss in another article), the Kumato, gas or coal and Raff pumped hydroelectric. If I had found 10 kg. of the Pera variety, buying it would have cost just € 10. Thus the more Pera tomatoes at the greengrocers store, that is the more energy from renewable sources there is, the cheaper it will be to purchase. The process of setting the price of electricity is the result of matching deals between producers and buyers’ demands is more complex than that described by the above example, but it gives an idea of how it works.
It is certainly difficult to estimate the savings that renewables represent in the final price of electricity, given that it changes every hour, but the renewable energy producers association APPA estimates the savings at 5.9 billion euros in 2013, almost as much as the government payments to the sector in that year. Maybe these savings are overestimated since that calculation is from renewable producers, and a bias must be assumed. But in any case the impact renewables have in lowering the cost of electricity is certainly very remarkable.
Clean energy saves gas and coal imports and avoids CO2 emissions to the atmosphere. Each kWh generated from renewables means one kWh not generated with gas or coal fuels that are not free, thus avoiding the need to import them. It is estimated that the savings in Spanish imports was 3.1 billion euros for 2013. Spain in 2013 imported energy worth 41 billion euros and in 2014 the figure was 38 billion euros, 4% of GDP.
Furthermore, by avoiding CO2 emissions Spain is also saving on the cost of emission allowances, for which Spain paid between 2008 and 2012 800 million euros. The estimate for emission allowance savings due to renewable production in 2013 was 180 million euros, so that if we add the savings achieved by lowering the price of electricity, the proceeds from avoiding imports and emissions, you arrive at a figure significantly higher than the subsidies paid to producers.
Clean energy does not generate additional costs in the electricity system. The height of the campaign of persecution against renewables came on the heels of legislation that introduces the so-called “backup toll” (a levy supposedly to fund a “backup” supply of electricity in case self-production fails). This legislation seeks to penalise the consumption of electricity from photovoltaic solar, arguing that users who do not have solar panels should not have to pay the additional costs that may enter the system due to some users preferring to consume their own production and thus opting out of buying electricity on the market.
I will illustrate what that toll represents by a new example: imagine that a citizen decides to buy an electric vehicle. It has benefits for the owner as he/she will stop buying petrol and it will also have benefits for the country as it will emit less greenhouse gases and will not have to import that petrol that it no longer needs to consume. But there are losers: the oil company will not obtain the profits obtained from the sale of petrol that the owner of the electric car no longer acquires. So the backup toll is a tax that the owner of the electric vehicle must pay for the petrol he has stopped buying!
What is behind this frontal attack on clean energy? First and foremost, the threat to profits to large energy companies, because if a significant number of consumers choose self-consumption the profits of energy companies will suffer, as they lose customers and therefore revenue.
Moreover, there is fear of renewables in general and especially solar photovoltaic, both within and outside our borders. That fear, expressed by large utilities, is based on the fact that clean energy is by its very nature, energy distributed in a geographically dispersed fashion; no large plants and almost all corners of the world; and production, especially in the photovoltaic sector, is controlled by small and medium producers and therefore it is beyond the control of large utilities. Promoting renewables means for those companies the loss of control of the very lucrative energy market.
Sooner or later the future is renewable; fossil fuels are not forever and citizens’ ecological awareness is growing. What remains to be decided is whether a future dominated by renewables will be a model of widely distributed, accessible and cheap energy, in which the small consumer has “energy independence” or instead be put into the hands of the large corporations. It is up to us to decide what model we want.
Ignacio Mártil is Professor at the Universidad Complutense de Madrid, and member of the EconoNuestra collective of economists.
Translation/edit by Revolting Europe