Cleantech Counterpoint: How California Can Learn From Spain's Clean Power Folly

Jeff Nolan headshotsmall3Renewable energy has for years been hailed as the predominant solution to California’s energy dilemma, a sentiment that more recently has been supported by public policy as well. But while there’s no question that sustainable energy is exciting, if Spain’s experience is any example, misplaced government mandates, aggressive special interests and taxpayer-funded subsidies for the clean power industry would cost us dearly.

Spain is often held up as the role model for renewable energy development. The Spanish government has been generous with subsidies for clean power in the form of grants and direct low-interest loans — $1.6 billion for the solar industry alone in 2008. The result has been that it’s basically subsidized companies’ losses and the true costs of renewable energy development has not been passed on to the consumer. Now the Spanish government is warning that its clean power policies could result in significant end user cost increases for electricity — for many years to come.

Spain’s Clean Power Folly

Gabriel Calzada, a Spanish economist and critic of the government’s approach to the solar market, notes that for each job his country’s alternative energy sector has created the cost to the Spanish government was $855,000. While hundreds of jobs were created during the construction phase of these alternative energy projects, few of them were permanent. Even more discouraging, according to Calzada, for every “green job” created in Spain, 2.2 jobs in other sectors were lost.

Spain’s subsidies and low-interest loans, which climbed to $1.6 billion in 2008 from $321 million in 2007, resulted in an explosion in solar panel manufacturing. But as the global recession hit and solar purchases took a dive, the Spanish government sought to reel in overcapacity and the market collapsed, resulting in thousands of job losses (and an unemployment rate of as high 18 percent) as the government –- and taxpayers -– no longer footed the bill.

Spain’s approach to renewable energy development was fundamentally flawed. And California, if it’s not careful, could find itself repeating Spain’s mistakes.

California Following in Spain’s Footsteps?

Here in California, according to the 2006 law AB32, investor-owned utilities are required to deliver 20 percent of their electricity from renewable sources by 2010. That’s a target the utilities will certainly miss because only 13 percent of the power delivered today is considered renewable, according to figures made public by the California Public Utilities Commission (CPUC). Even that agency is saying it will likely be 2014 before the 20 percent target is met. AB32 also created the regulatory framework by which the California Air Resources Board (CARB) could mandate that 33 percent of that power has to come from renewable sources by 2020, a mandate which Governor Schwarzenegger authorized by executive order last month.

Meanwhile, over in the Assembly, state senator Joe Simitian came out with a bill titled SB 14, which would require investor-owned utilities in California to not only deliver 33 percent of their power from renewable sources by 2020 but also require them to produce it in California. This would pose a real problem, however, as California doesn’t actually produce much power, but rather pipes it in from other western states and the Canadian province of British Columbia.

While the governor has announced that he plans to veto SB 14, the details of its proposal are worth noting. It attempts to force utilities to abandon existing sources of clean energy (California uses a lot of hydroelectric power) and replace it with new clean power generation that would have to be built within the state. According to utilities, the cost for complying with SB 14 on top of existing state mandates would exceed $115 billion by 2020.

To put that in perspective, PG&E, SDG&E, and Southern California Edison combined sell about $25 billion in energy (gas and electric) each year. In other words, Californians would see a sobering increase to their utility bills.

Don’t Go There

This micromanagement of the electricity marketplace is in essence an attempt at centralized economic planning, and would have dire consequences for the state. Simitian’s approach would foist significant costs on the consumer in the name of job creation.

But when power gets expensive, industries leave. It’s no secret that Google and Microsoft have been building out their massive data centers not in California but in the Northwest, where power is cheap. Over 25 percent of California’s manufacturing jobs — 35 percent of all high-tech manufacturing jobs — have left the state since 2000, according to a report prepared by the Milken Institute, to the benefit of neighboring states Arizona, Nevada and Texas.

The future of California is inextricably linked to Californians having jobs, but if the Legislature gets its way every job created in alternative energy will be accompanied by an exodus of jobs in other industries. While Spain’s policies have caught the attention of the world’s clean power industries and make for exciting reading material, California would be very unwise to follow that country’s lead.

Jeff Nolan is a former enterprise software venture capitalist and media/advertising executive who blogs at Jeffnolan.com.

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