After Boom and Bust Solar
Industry Learns Lessons in Spanish Sun
New York Times
March 8, 2010
PUERTOLLANO, Spain — Two years ago, this gritty
mining city hosted a brief 21st-century gold rush. Long famous for coal, Puertollano discovered
another energy source it had overlooked: the relentless, scorching sun.
Armed with generous incentives from the
Spanish government to jump-start a national solar energy industry, the
city set out to replace its failing coal economy by attracting solar companies,
with a campaign slogan: “The Sun Moves Us.”
Soon, Puertollano, home to the Museum of the Mining
Industry, had two enormous solar power plants, factories making solar
panels and silicon wafers, and clean energy research institutes. Half the solar
power installed globally in 2008 was installed in Spain.
Farmers sold land for solar plants.
Boutiques opened. And people from all over the world, seeing business
opportunities, moved to the city, which had suffered from 20 percent
unemployment and a population exodus.
But as low-quality, poorly designed
solar plants sprang up on Spain’s
plateaus, Spanish officials came to realize that they would have to subsidize
many of them indefinitely, and that the industry they had created might never
produce efficient green energy on its own.
In September the government abruptly
changed course, cutting payments and capping solar construction. Puertollano’s brief boom
turned bust. Factories and stores shut, thousands of workers lost jobs, foreign
companies and banks abandoned contracts that had already been negotiated.
“We lost the opportunity to be at the
vanguard of renewables — we were not only generating electricity, but also a
strong economy,” said Joaquín Carlos Hermoso Murillo, Puertollano’s mayor since 2004. “Why are they
limiting solar power, when the sun is unlimited?”
Puertollano’s wrenching fall points to the
delicate policy calculations needed to stimulate nascent solar industries and
create green jobs, and might serve as a cautionary tale for the United States,
where a similar exercise is now under way.
For now, electricity generation from
the sun’s rays needs to be subsidized because it requires the purchase of new
equipment and investment in evolving technologies. But costs are rapidly
dropping. And regulators are still learning how to structure stimulus payments
so that they yield a stable green industry that supports itself, rather than
just costly energy and an economic flash in the pan
“The industry as a whole learned a lot
from what happened in Spain,”
said Cassidy DeLine, who analyzes the European solar market for Emerging
Energy Research, a firm based in Cambridge,
Mass. She noted that other
countries had since set subsidies lower and issued stricter standards for solar
Yet, despite the pain that Spain’s
incentives ended up causing, in many ways they fulfilled their promise, Ms.
“Even though incentives can create
bubbles and bursts, without them this industry won’t take off,” she said. “The U.S. is really behind Europe
on this, and if we wait until solar is cost-competitive on its own, we may miss
the boat and an opportunity to shape the market.”
The most robust Spanish solar companies
survived the downturn, have restructured and are re-emerging as global players.
For example, when the government
changed course, Siliken Renewable Energy, originally
a producer of solar panels, shut its factories for five months and cut its
staff to 600 from 1,200. But after shifting its focus to external markets like Italy, France
and the United States,
and diversifying into solar support services, the company now turns a profit.
“We were a company that banks trusted,
so we could make the shift,” said Antonio Navarro, a company spokesman. “But a
lot of little companies disappeared.”
The period was particularly difficult
because it coincided with the global economic crisis, he said.
To encourage development of solar power
and reduce dependence on fossil fuels, Europe
has generally relied on so-called feed-in tariffs,
through which governments pay a hefty premium for electricity from renewable
resources. Regulators in the United States
have favored less direct incentives like requiring municipalities to buy a
percentage of their electricity from companies making renewable energy,
although a few cities and states, most notably Vermont, are experimenting with the feed-in
When it was announced in the summer of
premium payment for solar power was the most generous anywhere — 58 cents per
kilowatt-hour — with few strings attached.
In retrospect it was far too high.
“Everyone from all over the world was installing in Spain
as fast as they could, and every biologist who could add was working in solar,”
said Pedro Banda, director general of the Institute of Concentration Photovoltaic
Systems, one of the research institutes in Puertollano.
Even inefficient, poorly designed
plants could make a profit, and speculation in solar building permits was
Although Spain’s long-term goal had been to
produce 400 megawatts of electricity from solar panels by 2010, it reached that
milestone by the end of 2007.
In 2008 the nation connected 2.5 gigawatts of solar power into
its grid, more than quintupling its previous capacity and making it
second to Germany,
the world leader. But many of the hastily opened plants offered no hope of
being cost-competitive with conventional power, being poorly designed or
located where sunshine was inadequate, for example.
Designs for solar power plants vary.
The most common type uses photovoltaic panels to generate electricity. Others,
called thermal solar plants, use
mirrors to focus the sun’s energy on a liquid that, when heated, drives a steam
In its haste to create a solar
made some miscalculations: solar plants can be set up so quickly and easily
that the rush into the industry was much faster than anticipated. And the
lavish subsidies inflated Spanish solar installation costs at a time when they
were rapidly decreasing elsewhere — in part because of increasing competition
from panel makers in China,
but also because higher volumes produced economies of scale.
In Spain, the tariff, now adjusted
quarterly, is about 39 cents per kilowatt-hour for electricity from
freestanding solar power plants, and slightly higher for panels on rooftops.
Germany’s tariff, 53 cents per kilowatt-hour, is expected to fall at least 15 percent this
summer, and there are proposals before Parliament to eliminate subsidies for
solar plants on farmland.
The bonus payments required to make
solar energy financially viable vary, depending on local sunshine and the cost
of conventional energy. Experts predict that, possibly by next year, Italy will be
the first place where solar-generated electricity will not need subsidies to
compete with electricity from fossil fuel. Italy has abundant sun and sky-high
energy rates, given that it imports most of its fossil fuel.
Even with the reduced incentives and
local economic downturn, 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.
Although coal mines still dot the
landscape and a petrochemical factory remains one of Puertollano’s largest employers,
that new solar plant sits just next door, with more than 100,000
parabolic mirrors in neat rows on about 400 acres of former farmland. Clean and
white as a hospital ward, it silently turns sunshine into Spanish electricity.