Wednesday, March 10, 2010

Spain's solar energy mess

Tuesday's New York Times featured an article on the Spanish solar energy industry which should serve as another cautionary tale about public sector involvement in this area. Convinced that solar energy represented a future source of prosperity for Spain's economy, politicians in that country decided to encourage the construction of solar energy plants with lavish taxpayer-funded subsidies. The results were entirely predictable:
When it was announced in the summer of 2007, Spain’s 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 common.

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.
Subsidies inevitably generate more of whatever is being subsidized. In this case Spain subsidized solar energy and produced lots of new solar energy plants which were inefficient and didn't make economic sense. But how could it have been otherwise? If solar power was a viable source of energy the private sector would have already invested in the industry without any inducement from the Spanish government. In such interventions waste is assured, with the scale being the only unknown factor.

Attempting to place a positive spin on yet another story of wasted government expenditures on green energy, the Times' story concludes by highlighting the jobs that have been created through the public subsidies:
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.
That's great, but what about all of the jobs which weren't created because the Spanish government funneled money into solar energy instead of leaving it in the pockets of its citizens to spend as they see fit? This unasked question suggests yet another journalist who fails to grasp one of Bastiat's key insights.

Related: I've previously blogged about Spain's solar energy push here.

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