Nations Go Dark on Solar Subsidies

According to a report by Bloomberg News, Spain has halted subsidies for renewable energy projects in an effort to rein in the nation’s spending. Spain was among the first nations in the world to aggressively subsidize renewable energy projects, often cited by renewable advocates in the United States as a policy model for American lawmakers.

According to the report, “The system’s debts were racked up as revenue from state- controlled prices failed to cover the cost of delivering power.” In other words, Spain’s energy policies, heavy on renewable subsidies, created a $31 billion deficit that now plagues Spanish leaders.

Just days prior to Spain’s announcement, the German government announced its would phase out all national subsidies for renewable power by 2017. As the world’s largest market for solar panels, Germany’s announcement sent solar stocks plummeting worldwide. A report by Bloomberg News says that stocks for major Chinese solar panel manufacturers fell as much as 17% over a two-day period following the announcement. Germany’s largest solar manufacturer fell 7% on the news.

According to German Economy Minister Phillip Roesler, mounting costs tied to solar subsidies were threatening the nation’s economy. German officials expected about 3 gigawatts of solar installation in 2011, but instead saw 7.5 gigawatts. The glut of solar installation in Germany, funded heavily by taxpayer subsidies, led to the early phase out of the subsidies. The program had simply become too expensive.

While solar energy advocates fear that the subsidy pullback could create instability in the marketplace and chill demand, PACE believes that the experiences in Spain and Germany can teach us important lessons about the dangers of choosing winners and losers in the energy marketplace. Spanish taxpayers have paid dearly to make their nation a global leader in renewable energy, at a time when Spain’s unemployment rate is nearly 23%. Germany, long known for its commitment to solar power, has also generated some of the highest electricity rates in the world.

As the President continues to talk about America’s standing in the so-called “clean energy race,” policy makers should pay attention to this recent news from Spain and Germany. The entry price for the clean energy race is high. What constitutes victory, at least for consumers, is unclear at best. Those two facts alone should create serious doubt about whether heavy renewable energy subsidies should be part of our national future.