Spanish PV After the Crash

From roaring boom to crippling bust, the story of Spain's solar industry has entered into the mythology of the renewable energy business. For free market economists it is a fireside tale of the dangers of government interference, while for the opponents of renewable energy it is exhibit 'A' in the case against solar. But as the dust settles, we can now analyze what really happened, and answer the question: Is the Spanish solar industry terminally ill?

The growth of the Spanish solar market was explosive. PV installations shot up from 88 MW in 2006 to 2500 MW in 2008 before falling back to earth with a mere 70 MW installed in 2009. Employment and investment followed a similar path, with the industry adding jobs and then shedding as many as 25,000 jobs in 2009, as the global financial crisis peaked.

The reasons for the bust are straightforward. In 2004 a Royal Decree established a new feed-in tariff (FIT) for solar, set at €0.44/kWh [US $0.56]. In 2007, the upper limit on the size of the installations that qualified for the FIT was changed from 100 kW to 10 MW. This was generous, and in hindsight too generous. Confusion began almost straight away and the target of 400 MW proposed for 2010 was reached before the decree was even passed. As the government struggled to come up with a new policy, installations soared and costs began to spiral. Feed-in payments to the PV industry increased to €2.5 billion [US $3.36 billion], and even poorly designed systems could make a profit. This, coupled with a severe recession prompted the Spanish government to rush through yet another decree in 2008, reducing payments to €0.32/kWh [US $0.43], and introducing a pre-registration system to ensure that caps were not exceeded.

The result was predictable. The PV market stalled, falling by around 95% in 2009, and press articles around the world announced the failure of the feed-in tariff.

Not the End of the World

But despite these gloomy figures, all is not lost for the Spanish solar sector. To begin with, a great deal has already been achieved. While many have lost their jobs, more than 10,000 people still work in PV, and in 2009, with a total capacity of 3317 MW installed, PV produced nearly 3% of the nation’s electricity. (In fact between them, wind and solar now are providing around 13% of the electricity in Spain.).

Spanish companies are also finding new outlets overseas, taking their experience to new destinations, including in Europe’s hottest new markets.

“Spanish companies have been going abroad during 2009 and they have a lot of projects and investments in other countries, like Italy or USA,” explained Tomás Diaz of the Spanish Photovoltaic Industry Association (ASIF).

Manufacturing and exports, too, look like a bright area. In 2008 Spanish companies like Isofóton and BP Solar manufactured 500 MW of solar equipment and exported 70 MW. Figures for 2009 are still being compiled, but it is clear that exports are higher and manufacturing is recovering.

So what of the domestic market? Well, on closer inspection it is not perhaps as dire as the situation suggests. While it is true that installations may take a very long time to reach the highs of 2008, the near-paralysis suggested by the 2009 installation figures is also unlikely to last.

“Spanish PV companies have shown a great resistance and great capacity to adapt to really bad times. We are growing now and continue growing more in the medium and long term,” said Diaz.

There is also more emphasis on household systems. Prior to the crash, vast and somewhat controversial ground-mounted arrays made up the bulk of installations. These may now be a thing of the past.

“The current support scheme is better for rooftop and domestic systems than the former one. We are now trying to introduce net metering to the support scheme and the government likes the idea,” wrote Diaz.

Indeed, in a sunny country like Spain, a FIT of €0.32 is enough to make an installation affordable to households and up-to-date figures from ASIF suggest 2010 will see some 600 MW installed. Similarly, the European Photovoltaic Industry Association estimates that this market could continue to add around 375–500 MW a year until 2013, which would keep Spain as one of the top global markets, and enable PV to generate 4%–4.5% of the national electricity demand (equating to roughly 20% of domestic household electricity demand).

The endless summer may be over for Spain’s PV industry, but the future, at least for domestic applications still looks bright.