Spain's Solar Power Gold Rush Turns To Bust

Jobs never came. The Spanish government now expects that it has to subsidize solar power plants indefinitely.

This isn't the panacea that many environmentalists were claiming. It's turning out to be a horror show of its own in waste, mismanagement, and failed expectations.

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 like Spain’s.

“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 plants.

Yet, despite the pain that Spain’s incentives ended up causing, in many ways they fulfilled their promise, Ms. DeLine said.

“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.”

Is the US really behind the Europeans on this? I'm not so sure, given that the companies that are pushing solar power in the US have to tackle the cost issue head on, without the kinds of price supports and subsidies that helped create the boom and bust cycles in Spain.

It's wishful thinking to say that the Spanish experience with incentives was successful. The industry wouldn't take off because it isn't capable of making power in a cost-effective manner. Subsidies doesn't change that calculus and doesn't get the power-cost ratio down to a point where it is cost-effective. It rewards businesses that have inefficient technologies and reduces investment in areas that can lead to more efficient systems. Once again, it's the government picking and choosing winners and losers among technologies, rather than funding the research that goes into these technologies.