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Solar Industry Learns Lessons in Spanish Sun *By ELISABETH
ROSENTHAL<http://topics.nytimes.com/top/reference/timestopics/people/r/elisabeth_rosenthal/index.html?inline=nyt-per>
*

PUERTOLLANO, Spain — Two years ago, this gritty mining city hosted a brief
21st-century gold rush. Long famous for coal, Puertollano discovered another
energy source it had overlooked: the relentless, scorching sun.

Armed with generous incentives from the Spanish government to jump-start a
national solar energy<http://topics.nytimes.com/top/news/science/topics/solar_energy/index.html?inline=nyt-classifier>industry,
the city set out to replace its failing coal economy by attracting
solar companies, with a campaign slogan: “The Sun Moves Us.”

Soon, Puertollano, home to the Museum of the Mining
Industry<http://www.puertollano.es/opencms/export/sites/pto/contenidos/documentos/03_06_05_01_MuseoDeLaMineria/museo_mineria_folleto.pdf>,
had two enormous solar power plants, factories making solar panels and
silicon wafers, and clean energy research institutes. Half the solar power
installed globally in 2008 was installed in Spain.

Farmers sold land for solar plants. Boutiques opened. And people from all
over the world, seeing business opportunities, moved to the city, which had
suffered from 20 percent unemployment and a population exodus.

But as low-quality, poorly designed solar plants sprang up on Spain’s
plateaus, Spanish officials came to realize that they would have to
subsidize many of them indefinitely, and that the industry they had created
might never produce efficient green energy on its own.

In September the government abruptly changed course, cutting payments and
capping solar construction. Puertollano’s brief boom turned bust. Factories
and stores shut, thousands of workers lost jobs, foreign companies and banks
abandoned contracts that had already been negotiated.

“We lost the opportunity to be at the vanguard of renewables — we were not
only generating electricity, but also a strong economy,” said Joaquín Carlos
Hermoso Murillo, Puertollano’s mayor since 2004. “Why are they limiting
solar power, when the sun is unlimited?”

Puertollano’s wrenching fall points to the delicate policy calculations
needed to stimulate nascent solar industries and create green jobs, and
might serve as a cautionary tale for the United States, where a similar
exercise is now under way.

For now, electricity generation from the sun’s rays needs to be subsidized
because it requires the purchase of new equipment and investment in evolving
technologies. But costs are rapidly dropping. And regulators are still
learning how to structure stimulus payments so that they yield a stable
green industry that supports itself, rather than just costly energy and an
economic flash in the
pan<http://www.usnews.com/money/blogs/the-ticker/2008/07/01/solar-subsidy-mayhem>like
Spain’s.

“The industry as a whole learned a lot from what happened in Spain,” said
Cassidy DeLine, who analyzes the European solar market for Emerging Energy
Research <http://www.emerging-energy.com/>, a firm based in Cambridge, Mass.
She noted that other countries had since set subsidies lower and issued
stricter standards for solar plants.

Yet, despite the pain that Spain’s incentives ended up causing, in many ways
they fulfilled their promise, Ms. DeLine said.

“Even though incentives can create bubbles and bursts, without them this
industry won’t take off,” she said. “The U.S. is really behind Europe on
this, and if we wait until solar is cost-competitive on its own, we may miss
the boat and an opportunity to shape the market.”

The most robust Spanish solar companies survived the downturn, have
restructured and are re-emerging as global players.

For example, when the government changed course, Siliken Renewable
Energy<http://www.siliken.com/>,
originally a producer of solar panels, shut its factories for five months
and cut its staff to 600 from 1,200. But after shifting its focus to
external markets like Italy, France and the United States, and diversifying
into solar support services, the company now turns a profit.

“We were a company that banks trusted, so we could make the shift,” said
Antonio Navarro, a company spokesman. “But a lot of little companies
disappeared.”

The period was particularly difficult because it coincided with the global
economic crisis, he said.

To encourage development of solar power and reduce dependence on fossil
fuels, Europe has generally relied on so-called feed-in
tariffs<http://www.wind-works.org/FeedLaws/PrimersonFeed-inTariffsandAdvancedRenewableTariffs.html>,
through which governments pay a hefty premium for electricity from renewable
resources. Regulators in the United States have favored less direct
incentives like requiring municipalities to buy a percentage of their
electricity from companies making renewable energy, although a few cities
and states, most notably Vermont, are experimenting with the feed-in
concept.

When it was announced in the summer of 2007, Spain’s premium payment for
solar power was the most generous anywhere — 58 cents per kilowatt-hour —
with few strings attached.

In retrospect it was far too high. “Everyone from all over the world was
installing in Spain as fast as they could, and every biologist who could add
was working in solar,” said Pedro Banda, director general of the Institute
of Concentration Photovoltaic Systems <http://www.isfoc.es/>, one of the
research institutes in Puertollano.

Even inefficient, poorly designed plants could make a profit, and
speculation in solar building permits was common.

Although Spain’s long-term goal had been to produce 400 megawatts of
electricity from solar panels by 2010, it reached that milestone by the end
of 2007.

In 2008 the nation connected 2.5 gigawatts of solar power into its
grid<http://www.huffingtonpost.com/dennis-markatos/its-official-global-solar_b_175711.html>,
more than quintupling its previous capacity and making it second to Germany,
the world leader. But many of the hastily opened plants offered no hope of
being cost-competitive with conventional power, being poorly designed or
located where sunshine was inadequate, for example.

Designs for solar power plants vary. The most common type uses photovoltaic
panels to generate electricity. Others, called thermal solar
plants<http://www.solardev.com/SEIA-makingelec.php>,
use mirrors to focus the sun’s energy on a liquid that, when heated, drives
a steam turbine.

In its haste to create a solar industry, Spain made some miscalculations:
solar plants can be set up so quickly and easily that the rush into the
industry was much faster than anticipated. And the lavish subsidies inflated
Spanish solar installation costs at a time when they were rapidly decreasing
elsewhere — in part because of increasing competition from panel makers in
China, but also because higher volumes produced economies of scale.

In Spain, the tariff, now adjusted quarterly, is about 39 cents per
kilowatt-hour for electricity from freestanding solar power plants, and
slightly higher for panels on rooftops.

Germany’s tariff, 53 cents per kilowatt-hour, is expected to
fall<http://www.reuters.com/article/idUSLDE60J0PA20100120>at least 15
percent this summer, and there are proposals before Parliament
to eliminate subsidies for solar plants on farmland.

The bonus payments required to make solar energy financially viable vary,
depending on local sunshine and the cost of conventional energy. Experts
predict that, possibly by next year, Italy will be the first place where
solar-generated electricity will not need subsidies to compete with
electricity from fossil fuel. Italy has abundant sun and sky-high energy
rates, given that it imports most of its fossil fuel.

Even with the reduced incentives and local economic downturn, the solar
industry gave Puertollano something of a face-lift and, potentially, a new
economic future. Research institutes there are developing cutting-edge
technologies. Unemployment, though now up around 10 percent, has not
returned to the 20 percent figure. The city is home to a number of solar
businesses: a new 50-megawatt thermal-solar
plant<http://www.ecoseed.org/en/general-green-news/green-business-news/corporate-communications/2197-iberdrola-renovables-opens-first-solar-thermal-plant-200-million-50-megawatt-capacity>owned
by the Spanish energy giant
Iberdrola<http://www.iberdrola.es/webibd/corporativa/iberdrola?cambioIdioma=ESWEBINICIO>created
hundreds of jobs.

Although coal mines still dot the landscape and a petrochemical factory
remains one of Puertollano’s largest employers, that new solar plant sits
just next door, with more than 100,000 parabolic mirrors in neat rows on
about 400 acres of former farmland. Clean and white as a hospital ward, it
silently turns sunshine into Spanish electricity.
*By ELISABETH ROSENTHAL<http://topics.nytimes.com/top/reference/timestopics/people/r/elisabeth_rosenthal/index.html?inline=nyt-per>
*

PUERTOLLANO, Spain — Two years ago, this gritty mining city hosted a brief
21st-century gold rush. Long famous for coal, Puertollano discovered another
energy source it had overlooked: the relentless, scorching sun.

Armed with generous incentives from the Spanish government to jump-start a
national solar energy<http://topics.nytimes.com/top/news/science/topics/solar_energy/index.html?inline=nyt-classifier>industry,
the city set out to replace its failing coal economy by attracting
solar companies, with a campaign slogan: “The Sun Moves Us.”

Soon, Puertollano, home to the Museum of the Mining
Industry<http://www.puertollano.es/opencms/export/sites/pto/contenidos/documentos/03_06_05_01_MuseoDeLaMineria/museo_mineria_folleto.pdf>,
had two enormous solar power plants, factories making solar panels and
silicon wafers, and clean energy research institutes. Half the solar power
installed globally in 2008 was installed in Spain.

Farmers sold land for solar plants. Boutiques opened. And people from all
over the world, seeing business opportunities, moved to the city, which had
suffered from 20 percent unemployment and a population exodus.

But as low-quality, poorly designed solar plants sprang up on Spain’s
plateaus, Spanish officials came to realize that they would have to
subsidize many of them indefinitely, and that the industry they had created
might never produce efficient green energy on its own.

In September the government abruptly changed course, cutting payments and
capping solar construction. Puertollano’s brief boom turned bust. Factories
and stores shut, thousands of workers lost jobs, foreign companies and banks
abandoned contracts that had already been negotiated.

“We lost the opportunity to be at the vanguard of renewables — we were not
only generating electricity, but also a strong economy,” said Joaquín Carlos
Hermoso Murillo, Puertollano’s mayor since 2004. “Why are they limiting
solar power, when the sun is unlimited?”

Puertollano’s wrenching fall points to the delicate policy calculations
needed to stimulate nascent solar industries and create green jobs, and
might serve as a cautionary tale for the United States, where a similar
exercise is now under way.

For now, electricity generation from the sun’s rays needs to be subsidized
because it requires the purchase of new equipment and investment in evolving
technologies. But costs are rapidly dropping. And regulators are still
learning how to structure stimulus payments so that they yield a stable
green industry that supports itself, rather than just costly energy and an
economic flash in the
pan<http://www.usnews.com/money/blogs/the-ticker/2008/07/01/solar-subsidy-mayhem>like
Spain’s.

“The industry as a whole learned a lot from what happened in Spain,” said
Cassidy DeLine, who analyzes the European solar market for Emerging Energy
Research <http://www.emerging-energy.com/>, a firm based in Cambridge, Mass.
She noted that other countries had since set subsidies lower and issued
stricter standards for solar plants.

Yet, despite the pain that Spain’s incentives ended up causing, in many ways
they fulfilled their promise, Ms. DeLine said.

“Even though incentives can create bubbles and bursts, without them this
industry won’t take off,” she said. “The U.S. is really behind Europe on
this, and if we wait until solar is cost-competitive on its own, we may miss
the boat and an opportunity to shape the market.”

The most robust Spanish solar companies survived the downturn, have
restructured and are re-emerging as global players.

For example, when the government changed course, Siliken Renewable
Energy<http://www.siliken.com/>,
originally a producer of solar panels, shut its factories for five months
and cut its staff to 600 from 1,200. But after shifting its focus to
external markets like Italy, France and the United States, and diversifying
into solar support services, the company now turns a profit.

“We were a company that banks trusted, so we could make the shift,” said
Antonio Navarro, a company spokesman. “But a lot of little companies
disappeared.”

The period was particularly difficult because it coincided with the global
economic crisis, he said.

To encourage development of solar power and reduce dependence on fossil
fuels, Europe has generally relied on so-called feed-in
tariffs<http://www.wind-works.org/FeedLaws/PrimersonFeed-inTariffsandAdvancedRenewableTariffs.html>,
through which governments pay a hefty premium for electricity from renewable
resources. Regulators in the United States have favored less direct
incentives like requiring municipalities to buy a percentage of their
electricity from companies making renewable energy, although a few cities
and states, most notably Vermont, are experimenting with the feed-in
concept.

When it was announced in the summer of 2007, Spain’s premium payment for
solar power was the most generous anywhere — 58 cents per kilowatt-hour —
with few strings attached.

In retrospect it was far too high. “Everyone from all over the world was
installing in Spain as fast as they could, and every biologist who could add
was working in solar,” said Pedro Banda, director general of the Institute
of Concentration Photovoltaic Systems <http://www.isfoc.es/>, one of the
research institutes in Puertollano.

Even inefficient, poorly designed plants could make a profit, and
speculation in solar building permits was common.

Although Spain’s long-term goal had been to produce 400 megawatts of
electricity from solar panels by 2010, it reached that milestone by the end
of 2007.

In 2008 the nation connected 2.5 gigawatts of solar power into its
grid<http://www.huffingtonpost.com/dennis-markatos/its-official-global-solar_b_175711.html>,
more than quintupling its previous capacity and making it second to Germany,
the world leader. But many of the hastily opened plants offered no hope of
being cost-competitive with conventional power, being poorly designed or
located where sunshine was inadequate, for example.

Designs for solar power plants vary. The most common type uses photovoltaic
panels to generate electricity. Others, called thermal solar
plants<http://www.solardev.com/SEIA-makingelec.php>,
use mirrors to focus the sun’s energy on a liquid that, when heated, drives
a steam turbine.

In its haste to create a solar industry, Spain made some miscalculations:
solar plants can be set up so quickly and easily that the rush into the
industry was much faster than anticipated. And the lavish subsidies inflated
Spanish solar installation costs at a time when they were rapidly decreasing
elsewhere — in part because of increasing competition from panel makers in
China, but also because higher volumes produced economies of scale.

In Spain, the tariff, now adjusted quarterly, is about 39 cents per
kilowatt-hour for electricity from freestanding solar power plants, and
slightly higher for panels on rooftops.

Germany’s tariff, 53 cents per kilowatt-hour, is expected to
fall<http://www.reuters.com/article/idUSLDE60J0PA20100120>at least 15
percent this summer, and there are proposals before Parliament
to eliminate subsidies for solar plants on farmland.

The bonus payments required to make solar energy financially viable vary,
depending on local sunshine and the cost of conventional energy. Experts
predict that, possibly by next year, Italy will be the first place where
solar-generated electricity will not need subsidies to compete with
electricity from fossil fuel. Italy has abundant sun and sky-high energy
rates, given that it imports most of its fossil fuel.

Even with the reduced incentives and local economic downturn, the solar
industry gave Puertollano something of a face-lift and, potentially, a new
economic future. Research institutes there are developing cutting-edge
technologies. Unemployment, though now up around 10 percent, has not
returned to the 20 percent figure. The city is home to a number of solar
businesses: a new 50-megawatt thermal-solar
plant<http://www.ecoseed.org/en/general-green-news/green-business-news/corporate-communications/2197-iberdrola-renovables-opens-first-solar-thermal-plant-200-million-50-megawatt-capacity>owned
by the Spanish energy giant
Iberdrola<http://www.iberdrola.es/webibd/corporativa/iberdrola?cambioIdioma=ESWEBINICIO>created
hundreds of jobs.

Although coal mines still dot the landscape and a petrochemical factory
remains one of Puertollano’s largest employers, that new solar plant sits
just next door, with more than 100,000 parabolic mirrors in neat rows on
about 400 acres of former farmland. Clean and white as a hospital ward, it
silently turns sunshine into Spanish electricity.


Eric D. Schwerin

Rosemont Seneca Partners, LLC

1010 Wisconsin Ave., NW

Suite 705

Washington, DC 20007

(202) 333-1880

eschwerin@rosemontseneca.com <eschwerin@obblaw.com>

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