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Summary:

Spain once symbolized a great solar boom – and then bust – as its government lowered incentives to reign growth. That repercussion of that boom has continued, however, and on Friday the government announced a suspension of the incentive program to cut costs.

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Spain once symbolized a great solar boom – and then bust – as its government lowered incentives for clean power to try to rein in a fast installation rate that was way higher than anticipated. The repercussions of that boom have continued, however, and on Friday, the government announced a complete suspension of the incentive program to cut costs.

The announcement covers incentives for all sorts of renewable energy projects, including wind and solar power, reported Bloomberg. It will affect new projects, not those already in place. Those that have been operating all have long-term contracts to deliver electricity to utilities at guaranteed, premium prices.

The government approved the suspension because the incentives are saddling it with a growing debt at a time when it’s got a big deficit and needs to cut spending. The incentive policy requires utilities to buy renewable energy at rates higher than what they would pay for conventional, fossil-fueled based power.

But instead of allowing utilities to pass the cost onto consumers, the government has required the utilities to carry the costs as government-backed debt, according to Reuters.  Spain didn’t want its residents to see a spike in utility bills during a weak economy. However, the debt created by setting the premium pricing, called feed-in tariffs, reached about €24 billion ($32 billion USD) by the end of 2011.

Spain’s incentive policy was meant to provide some measure of certainty for renewable energy project developers and their equipment suppliers. While it did that to some extent, it also has caused some heartburn when it was repeatedly revised to reflect changing political or economic realities. The country installed a huge number of solar panels in 2007 and 2008, when it set high rates for solar power and thought it wouldn’t be able to reach its goal of installing a total of 400 MW until 2010. Instead, it added 344 MW by Sept. 2007 and added another 2.6 GW in 2008. That prompted the government to set a limit of 500 MW for 2009 and effectively ended the boom.

Spain was a big market for companies such as SunPower, which saw its sales outside of the U.S. fall from 64 percent in 2008 to 57 percent in 2009, partly due to the change in Spain’s feed-in tariff policy, according to its 2010 annual report.

Feed-in tariffs have helped make countries such as Germany and Italy the two largest solar energy markets in the world. China implemented a feed-in tariff policy last year and added somewhere between 2.2 GW and 2.9 GW in 2011, according to different estimates by Bloomberg and NPD Solarbuzz. Those figures made China the third largest market last year.

But those tariffs are subject to change – sometimes more frequent than expected. And the extent of changes, which usually involves lowering the rates, also can be unpredictable. Germany is in the midst of fighting over how to modify its feed-in tariffs to cut costs; the minster of environment wants to lower the rates more frequently, while the minister of economy wants a 1GW annual cap.

Photo courtesy of Lauren Manning via Flickr

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