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

23 Comments

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 (s GOOG) and Microsoft (s MSFT) 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.

23 Comments

Funky Monkeys Spain Solo

Hey Jeff

Would love to hear your response to the comments from your contributors about Calzada’s utterly discredited study. Turns out one of Spain’s few actual industrial success stories is the renewable energy sector.

Regards

lewis

I bet if this happened INSIDE the US nothing would be published in the media.

At best we´d get a couple of articles in some blogs and that´s it.

For the US can´t cope with the fact that other countries are taking the lead on greentech.

That´s why the US for example insists in corn and other crap as ethanol sources instead of just going for sugar cane, which is a time PROVEN technology.

So let us do the old american thing: “If we can´t do it nobody else will!”

When the US takes its head out of its ass maybe it will be a world leader in greentech technologies and will not need to keep bashing projects abroad instead.

mika.

“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.”

The subsidies the solar and wind energy industries receive are a tiny fraction of the subsidies and tax breaks the oil/nuke/NG/biofuel/coal energy suppliers receive. My contention is very simple. If we were to eliminate all subsidies, direct and indirect, I have no doubt that solar and wind would come on top. Perhaps, Jeff, instead of writing half truths and misdirections, you will address the trillion dollar subsidies the car/oil/military mafia receives vs the measly billion or two that the solar and wind energy industries receive.

Jeff Nolan

I agree with you, subsidies and tax credits for oil and natural gas industries are wrong and should be eliminated. Similarly, exemptions from Waxman-Markey of up to 15 years for coal power plants is a cynical measure with the sole purpose of buying votes to pass the bill. I plan on writing about biofuel market manipulation in a future column but suffice to say it hasn’t exactly worked out to the benefit of taxpayers or the companies involved (e.g. VeraSun bankruptcy).

Car company bailouts and DOE low interest loans for car companies that can’t otherwise sell debt on their own are little more than stripping dollars out of taxpayer wallets. I wrote in opposition of the first and second round of car company bailouts and when the next round comes due in 2010 I will be of the same position.

Maybe a related problem is a “a billion or two” gets thrown around as if it were loose change instead of money that gets borrowed or taxed out of the economy? Maybe?

mika.

Maybe a related problem is a “a billion or two” gets thrown around as if it were loose change instead of money that gets borrowed or taxed out of the economy? Maybe?

It is loose change. We spend over a trillion a year subsidizing the oil. Yes, trillion with a “T”. There’s absolutely no excuse for the US to be in the ME, other than to subsidize the oil mafia thru this trillion dollar insurance policy.

The solar and wind industries don’t compete in a vacuum. They compete in an environment where entrenched mafias have a lock on funding, politicians, and policy. I myself am a Libertarian, and would like nothing better than the elimination of the IRS and the federal gov. But until that happens, articles like the one above serve as a little more than propaganda pieces for the entrenched mafia and the status quo.

mika.

“Maybe a related problem is a “a billion or two” gets thrown around as if it were loose change instead of money that gets borrowed or taxed out of the economy? Maybe?”

It is loose change. We spend over a trillion a year subsidizing oil. Yes, trillion with a “T”. There’s absolutely no excuse for the US to be in the ME, other than to subsidize the oil mafia thru this trillion dollar insurance policy.

The solar and wind industries don’t compete in a vacuum. They compete in an environment where entrenched mafias have a lock on funding, politicians, and policy. I myself am a Libertarian, and would like nothing better than the elimination of the IRS and the federal gov. But until that happens, articles like the one above serve as a little more than propaganda pieces for the entrenched mafia and the status quo.

Gregor

The swing in all energy prices, whether NG, Oil, or kWh after investment has been made can dynamically change how we view sunk costs. Spain is currently in a depression, so all this spare powergen capacity is doubly deflationary. It’s sitting there like a sports car version of electricity as surely the coal-fired and NG-fired stuff crashes lower in price. And then to make matters worse, demand obviously has been crushed, so it looks like the soviet buildout of cement factories. But had the global financial crisis not hit until later, then all this power-gen would look alot better. I can’t testify as to the numbers, but, had NG fired powergen in the EU continued on its previous pace–then the discounted forward savings from this infra buildout of new solar and wind would appear to be a huge competitive advantage for Spain. You could have seen companies and manufacturers deciding to locate in Spain, simply because of capacity.

This is fairly non-static stuff. I actually wonder that CA energy policy is pretty effed-up for a whole host of reasons regardless of any comparisons to Spain. That said, the example of what happened to Oil prices in the 1930’s is instructive here. The big irony is that CA needs to address is it’s over-leveraged exposure to liquid energy–petrol for cars first. All this over-focus on the present power grid from Washington and Sacto is barking up the wrong tree.

Hey but you know my position. CA should drill for oil to create the capital to build rail. And I do think it should build some utility grade solar to support that. But at least this flow of capital could run from what’s in the ground already.

Jeff

I’m glad you chimed in Gregor. You and I agree on liquid hydrocarbons just being there for the taking and literally fueling a transition strategy. We’ve discussed that at length before and we also agree that CNG/LNG needs a bigger seat at the table in CA.

My point on solar (and wind for that matter) is twofold: the first being that governments have a marvelous track record of distorting the supply and demand curve with economically disastrous effects, and secondly that we can’t treat renewable production as a California only problem.

If on the latter we do as Simitian proposed, we would reject existing sources of clean renewable power generated in western states and BC. The idea that CA would be a net exporter of power isn’t plausible considering that are neighboring states already produce more than their domestic demand requires and with pricing essentially fixed producers would simply run below capacity because they can’t put power on the grid if there is no buyer to wheel it to.

California is right to put mandates on the CA market but they are dead wrong to put mandates that they acknowledge won’t be met and then attempt to act as the designated hitter for the market when it comes to determining where that power will be produced.

Bob Wallace

“The idea that CA would be a net exporter of power isn’t plausible considering that are neighboring states already produce more than their domestic demand requires and with pricing essentially fixed producers would simply run below capacity because they can’t put power on the grid if there is no buyer to wheel it to.”

Well, let’s consider two of Ca’s neighbors, Nevada which gets 50% of its electricity from coal and Arizona which gets 43% from coal.

Suppose CA produces a surplus of renewable electricity and Congress puts a price on carbon release which drives up the cost of burning coal.

End result? Coal plants in NV and AZ shut down. Which is exactly what the whole world needs.

Possible? Well, using some quick and dirty numbers

Coal-electricity is $0.03 kWh

Wind-electricity $0.05 kWh (more like $0.03 kWh best case/best sites/newest tech)

First Solar has been able to install solar at $0.075 kWh (without subsidies).

It wouldn’t take much of a carbon pricing to move coal up to or above the price of wind.

And it makes no sense to run a coal plant full tilt boogie 24 hours a day and then sell only to peak demand hours. Solar at $0.20 kWh would be a better financial decision.

Paul

Where is the logic in linking jobs to renewables and saying, on that basis, it failed? It’s just too simple minded.

Spain routinely generate more energy from Wind than from Nuclear and Coal combined. I’d call that a win, IF your objective is energy independance.

http://electric-vehicles-cars-bikes.blogspot.com/2009/03/spain-sets-new-wind-power-record.html

You can’t realistically have every country and state manufacturing their own renewable hardware just to create jobs, that’s inefficient! And unless you export then then jobs are as short term as installing… someone has to be a customer.

Installing it is OBVIOUSLY short term work, but there will be plenty of it to go around (so long as idiots on Wall Street don’t crash the financial systems again).

The Hoover damn had plenty of Naysayers too I’m sure, but it provided plenty of work during a depression … and decades worth of FUEL-LESS ENERGY. Yet there aren’t many permanent jobs associated with maintenance on it…. that’s the nature of REWNEWABLE, you don’t have to keep digging fuel out of the ground.

Just a note… you’re gonna wear yourself out if you reply to EVERY comment.

Graham

Gabriel Calzada’s report has been totally discredited as the methods used were totally wrong and the conclusions spectacularly wrong. Until people stop quoting this rubbish then the lie will become the truth.

Bob Wallace

Jeff, here’s a site that critiqes Calzada’s study. I can see some very valid questions about arriving at the one sentence takeaway of “2.2 jobs lost”.

And it has some interesting information on Calzada himself. Seems that he’s in the global warming skeptic/denial camp, has been funded by Exxon, and a featured speaker at anti-environmental organizations such as the Heartland Institute.

http://greeneconomypost.com/debunk-spanish-study-green-jobs-1582.htm

Bob Wallace

PV panel prices rose mostly to a shortage of processed silicon. Once more processing capability came on line panel prices began to drop. The worldwide economic crisis knocked the legs out from under panel sales.

Panel prices are back to about where they were prior to the silicon shortage. From where I sit, best retail prices are about 15% lower. Is that due to the post-Spanish glut or is it due to innovation? Hard call.

Spain was very aggressive in its support of renewable energy. Their subsidies worked like the first phase of Cash for Clunkers, they brought more players to the game than Spain had anticipated. And Spain’s renewable installations happened prior to carbon-releasing electricity becoming expensive (which it almost certainly will).

If we place a cost to burning fossil fuels and releasing that previously sequestered carbon into the atmosphere California’s decisions are likely to look genius. CA residents and industries will be able to buy reasonably priced renewable energy and other states will be scrambling.

I think it very unwise to assume that cheap coal power will be available in the coming years. And even suppliers of inexpensive hydro power will likely respond to market opportunity and sell their power to the grid at higher than present prices.

Who doesn’t like to make a buck?

Jeff

Very well said.

I think the Cash for Clunkers analogy is quite appropriate for a reason you probably didn’t intend in that that program assumed we could achieve economic growth by literally destroying productive assets and we know now that it didn’t exactly work out as intended with the cost to taxpayers for each vehicle (taking into account the emissions benefit) at $2k per vehicle.

As Bloomberg’s Ms. Baum pointed out, you can’t claim economic growth by breaking windows and then paying people to fix them.

Lastly, CA gets about 3% of it’s power from coal but if cheap coal is indeed coming to an end it will be because of government mandates not because of supply issues.

Bob Wallace

You’re forgetting that Cash for Clunkers was not a carbon reduction program, but an economic stimulus program with an environmental aspect tacked on the end.

The “can’t create growth by breaking windows” is something that the right likes to use. But it does not apply in the current situation.

We need to “break windows” and get a few people back to work. And when those glaziers get their paychecks they will spend them in our grocery stores, buy a new pair of shoes, see a movie. It’s about restarting the economy. Growing will come later, but first we have to get the economy out of its sick bed.

C4C worked very well. It kept a lot of car dealers from going under, it moved a lot of cash from under mattresses where it was hiding, and created some auto manufacturing opportunity for stalled factories.

And, yes, the end of cheap coal generated electricity will come from charging coal plants a fee to dump their carbon into our atmosphere. I said that, if you read what I wrote.

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