Heavy subsidies sustain Spain’s wind power

Erie Shores Wind Farm

Erie Shores Wind Farm

March 2009

Posted by Ian:
An extensive wind farm dominates the landscape in East Elgin. Wind power is a key component of Dalton McGuinty’s Green Energy Act for Ontario. Are they sustainable without heavy government subsidies?

By Dr. Stephen Murgatroyd
Troy Media Corporation

Spain has a great many wind farms. In fact, by 2010, Spain will have 20,000 megawatts of installed capacity. At the peak of the winds this past February, it was able to generate 11,800 megawatts, or 29% of its energy requirements on a particular day (meaning that the turbines were working at 69% of their capacity).

Spain ranks third in the world for wind power, behind only Germany, at nearly 24,000 megawatts of capacity, and the United States, at No. 1, with over 25,000 megawatts.

But there’s a cost. Wind power has grown in Spain only because of the size of the subsidies involved. The case is the same for solar power.

For wind power, the subsidy consists of the market price (regulated by the government with the added requirement that the energy companies must buy wind power) plus 90% of the market price for a period of fifteen years, at which time it drops to 80%. In the case of solar power, the subsidy is 575% of the market price for twenty five years, when it falls to 460% above market.

Annually, the government-underwritten wind-power contracts are costing approximately Euro28.6 billion. It isn’t surprising that such levels of subsidies have led to the creation of overcapacity. The government’s 2008 target for growth in installed capacity for renewable power – 371 megawatts – actually turned into 2,934 megawatts . The Spanish government has since capped growth.

US President Barack Obama has already pointed to Spain as an example the US should follow. He may want to be cautious, however. A recent economic analysis from the Juan Carlos University in Madrid suggests that, rather than creating the 50,000 jobs the Spanish government claimed would be created, the net green jobs created are closer to 15,000. Most of these jobs are associated with construction, since few are required once construction is completed to maintain and manage the wind and solar installed capacity. What is more, renewable energy has led to lost jobs elsewhere (especially when coupled with the impact of the European Carbon Credit Trading System – cap and trade). The study just mentioned suggests that the net costs of creating a single sustainable green job are approximately Euro500 million. It also suggests that, for every green job created, some 3.9 jobs are lost in other sectors – someone has to pay for that subsidy level.

Further, Spain (as is the case in Germany and the US) realize that wind power is unreliable and has to be supported by “firming” – gas powered, nuclear or coal fired power to cover those periods when the wind is low but energy demand is high. As wind capacity increases, so too does the capacity of fossil fuel or nuclear systems to “cover” for low wind periods.

It is inevitable that these developments, which guarantee return on investment to wind power and solar companies of between 12 and 20% for up to 20 years, will increase energy costs and enlarge the number of people who experience energy poverty. It will also lead to companies being taxed more to pay for this scheme – estimates are that new green taxes cost Spanish companies some Euro15 billion in direct and indirect taxes over the last five years, some 35 times more than the original government estimate of Euro85 million.

So strong are the new taxes and regulatory challenges for Spanish companies that some are leaving Spain – Acerinox, the Spanish steel maker, is downsizing its operations and looking at whether it should stay in Spain.

No one, it seems, is able to make money selling wind power or solar energy unless it is heavily subsidized and the customer price is regulated. Those looking at renewable energy need to be careful and learn from the experience of Spain.


5 thoughts on “Heavy subsidies sustain Spain’s wind power

  1. We Spaniards are subsidizing wind energy as it gets 7% more efficient every year, which means it will be twice as cost-effective ten years from now, which means cheaper than any other source of energy.

    Once it becomes the cheapest way to get electricity, and the US buys wind turbines for some 10% US GDP, you will see all those jobs coming to Spain. (By the way, the same goes for high-speed rail, underground systems, electric cars, etc.).

  2. Diego;

    Many thanks for your comments. Can you add further insight into the issues mentioned, such as efficiency and reliability of the wind farms, over capacity and energy poverty? Are there are a significant number of jobs being created for wind technology? Is there much negativity towards wind farms from people who live near by as is the case in parts of Canada?

  3. Ian,

    wind farms are an emerging technology. Right now, they are less efficient than other sources; but, if last decade’s pace of innovation holds, it will be cheaper than any other energy source in just 10 years’ time due to scaling and research in new materials.

    Many people say wind is unreliable because you can’t predict when it will blow. This is true for a single place; but you can safely predict how strongly the wind will blow in Europe as a whole. As soon as Europe’s electrical networks get connected, the problem will be solved. If the wind is blowing strongly in Spain, we will send the energy to other countries; and vice versa.

    Wind power has created lots of jobs. Not only in construction and manufacturing, but in many other ways. Imagine a typical tiny village (50 people) surrounded by windy hills; a green company may set up 20 wind turbines, and pay 5,000 euros yearly to the land owners for every wind turbine. That means 2,000 euros in extra income for each person in the village, which spurs consumption and creates new jobs (not accounted for in that biased study). It may even build a new road for free to transport all that heavy equipment! And I am pretty sure the study doesn’t take into account jobs in energy consultancy (a fast-growing sector) or positive externalities (e.g. Spain’s research on new materials for renewables gave it an edge on airplane-manufacturing).

    Many people complain about little nuisances when thinking about the new; they can’t understand that little joys will also come along the way. Spain used to have lots of forest fires in summer due to its dry climate (much as California has); wind farms are supervised with infrared cameras detecting high temperatures, which also detect early fires and so forest damage has been vastly reduced (with no extra cost to the taxpayers).

    Another perceived problem is expensive energy. Let’s say we pay electricity some 25% more expensive due to renewables. That just makes industry and homes more energy-efficient (all those jobs in energy consultancy…). I mean, car fuel in Europe costs twice as much as in the US; did we lose our car industry because of that? No. In fact, it is the US car manufacturers that are on the brink of bankruptcy.

    Today, General Motors. In 10 years’ time, General Electric.

  4. Diego:

    Excellent points, particularly the intangibles like the potential for positive impact on smaller neighbouring communities, support infrastructure and area surveillance. And, you are right, the cost of fuel, along with other commodities and real estate can be as much as twice what we pay in North America. In Europe and the U.K. that has led to automotive advances in comfort and fuel efficiency that the Big Three in North America are discovering may be their downfall because they paid so little attention to this when gas was a relatively cheap commodity.

  5. Even if the government subsidizes wind power, the money used to pay to produce that energy remains in Spain instead of going to any oil-producing country. Even if no jobs were created that would be a good investment – assuming the energy generated is reasonably competitive. And today it is and it’s getting more competitive every year keeping the price of oil and natural gas under pressure. Can you imagine the cost of a barrel of oil without alternative energies?
    It is true that wind power, above certain percentage, could make the electrical network unstable, but this, so far in Spain, has not been a problem. I look at this weakness as an opportunity more than a problem: there probably few areas as promising as the energy-storage business, certainly a hot prospect for any company that finally gets it right… and somebody will. A combination of a cheap way to store energy and wind-power is going to be a clear winner, someday. Saludos from Spain.

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