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Spain: Solar PV growth to slow as feed-in tariff is cut

THE PARTY is, if not over, then severely curtailed for Spain's solar photovoltaic (PV) energy sector, following the government's decision to curb what was widely regarded as an overly generous tariff framework. Subsidies have been slashed in an effort to cut public funding for solar PV, which has been far higher than originally envisaged (PE 6/08 p26).

Under the country's solar-energy plans, subsidised solar power was expected to contribute around 370 megawatts (MW) of new generating capacity in the period May 2007 to end-2010. Instead, PV builders have exploited a loophole in the regulatory framework to exceed that amount by a significant margin. In 2008 alone, at least 1.3 gigawatts of solar capacity is expected to be built, most of it eligible for generous feed-in tariffs.

The proposed new framework, which is expected to pass into law, is far more clear-cut about what will be subsidised. Only 300 MW a year of new capacity will be eligible for elevated feed-in tariffs, and those tariffs are themselves being cut. In the case of ground-based installations, the tariff in early 2009 will be around €0.29 ($0.45) a kilowatt-hour, compared with €0.44/kWh under the old regime. Roof-based installations fare better, with a €0.33/kWh tariff in 2009.

Despite the less-favourable tariff environment, the sector is still set for expansion, given the high cost of fossil fuels and the increased competitiveness of solar power as the technology advances. However, this will inevitably be more limited than at present. "Solar will still be worth doing, but the 300 MW cap will curtail growth," says Jenny Chase, a senior analyst at renewables consultancy New Energy Finance (NEF). She points out that the new tariffs still compare favourably with those in other European countries.

While the price paid by the government may have been high, the old regime has certainly served one of its purposes -- catapulting the country to become one of the global leaders in both solar PV production and technology.

The country is also a significant force in concentrated solar power (CSP), where there is unlikely to be a slow-down in expansion, as the tariff regime for this sector has not been touched. The government is mindful that CSP, which uses the sun's rays to heat water into steam to drive turbines, has been slower to take off than solar PV because it requires greater up-front investment, so needs more encouragement.

But Chase notes that the tariff structure for CSP is similar to that being abandoned for PV, in terms of how subsidised capacity is limited, so there is a danger that similar capacity overshoots could now occur in that sector too.

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