Background

 
 
Spain  is  highly  dependent  on  energy  imports.  According  to  EUROSTAT  during  
2009  87.7%  of  its  primary  energy  came  from  external  countries  and  it  ranks  6th  in  
the  imports  of  coal,  oil  and  gas,  3rd  in  the  imports  of  gas  in  the  European  Union  and  
is  the  largest  importer  of  liquefied  natural  gas  in  the  world.    Even  further,  89.2%  of  
its  oil  and  gas  imports  come  from  countries  with  very  unstable  governments,  most  
of  them  located  in  the  North  of  Africa  and  middle  east,  50%  of  the  gas  imports,  come  
from   Algeria   and   Egypt,   so   any   dramatic   change   in   the   political   situation   of   any   of  
these   countries   and   consequently   on   the   fuel   supply,   could   affect   dramatically   the  
Spanish  economy.    The  situation  within  the  European  Union  (EU)  is  not  as  drastic,  
but  quite  similar;  in  2008,  54.8%  of  their  energy  consumption  came  from  imported  
sources,   while   two   thirds   of   these   imports   come   from   Russia   and   the   Middle   East  
countries.    
At   the   same   time,   the   EU   ratified   the   Kyoto   protocol,   committing   to   a  
reduction   in   their   green   house   gas   emissions.     Spain   as   a   member   of   the   EU   also   has  
to  comply  with  an  emission  cap  of  greenhouse  gasses.    So,  continuing  with  the  use  
fossil  fuels  does  not  seem  like  a  feasible  option  neither  for  the  EU  or  Spain.  
In   1997,   the   European   commission   published   “The   White   Book”   for   a  
strategy  and  community  action  plan  on  Renewable  Energy  Sources  (RES).    With  the  
objective  of  supporting  it,  in  2001  The  European  parliament  and  council  approved  
the   “Directive   2001/77/EC   of   on   the   promotion   of   electricity   from   renewable   energy  
sources   in   the   internal   electricity   market  “  which  set  a  target  of  12%  of  gross  inland  
energy   consumption   from   renewables   for   the   EU-­‐15   by   2010,   of   which   electricity  
would  represent  21%.      
In  order  to  comply  with  this  commitment  the  Spanish  Government  developed  
the  Promotion  Plan  for  Renewable  Energy  2000-­‐2010  by  the  end  of  2004  the  gross  
inland   energy   consumption   from   RES   reached   only   6.5%   being   30%   of   this  
generation   due   to   hydroelectric   power   that   had   been   installed   previously   to   the  
plan.     To   be   able   to   comply   with   the   2010   commitment,   the   Spanish   Ministry   of  
Development  made  a  review  of  the  plan  presenting  the  new  Renewable  Energy  Plan  
(REP)   for   2005-­‐2010   giving   more   incentives   to   the   industries   to   increase   the   RES  
generation,   by   2010,   RES   accounted   for   12.2%   of   the   gross   inland   energy  
consumption   and   25,1   %   of   electricity   was   generated   through   RES,   carrying   on   a  
great   development   of   the   Wind   and   Solar   Photovoltaic   industries,   which   became   a  
world  reference  in  their  fields.    
  The   increase   in   RES   happened   specially,   during   2007   and   2008   being   more  
steady,   in   the   case   of   Wind   Power   industry   than   in   the   Photovoltaic   industry,   the  
Spanish   Government   changed   the   regulatory   framework   several   times   in   order   to  
increase  the  interest  of  investors  towards  this  new  technologies;  creating  a  special  
regime  for  electricity  produced  from  renewable  sources  and  presenting  feed  in  tariff  
reforms.     During   the   last   two   years,   some   of   those   incentives   have   been   modified,  
creating  a  downturn  in  some  sectors  of  the  Renewable  Energy  Industry.  
  During   2009,   the   European   Parliament   and   the   Council   approved   Directive  
2009/28/EC   on   the   promotion   of   the   use   of   energy   from   renewable   sources   and  
amending   and   subsequently   repealing   Directive   2001/77/EC.     According   to   the  
targets   set   in   this   Directive,   by   2020,   the   20%   of   the   gross   energy   consumption   in  
Spain,  will  have  to  be  from  RES  and  the  share  of  energy  from  RES  in  the  transport  
sector  must  amount  to  at  least  10  %.    The  Directive  established  that  each  Member  
State   had   to   prepare   a   National   Action   Plan   for   Renewable   Energy   Sources  
(NAPRES),   Spain   already   prepared   a   draft   of   this   document   which   is   right   now  
under  review,  the  targets  set  for  the  time  being  are  22.7%  of  RES  for  the  total  energy  
consumption  and  13.6%  of  RES  for  the  total  energy  used  for  transportation  
 
History  of  RES  regulatory  framework  (1)    
     
The  Spanish  Government  had  to  develop  a  regulatory  framework  with  clear  
incentives  in  order  to  promote  the  use  of  RES  in  Spain.    
1. Law  of  the  Electricity  Sector  (Law  54/97)  provides  the  basic  framework  for  
Renewable  Energy  Sources  for  Electricity  (RESE).    
• It  establishes  a  ‘‘Special  Regime’’  (different  from  the  conventional,  ‘‘Ordinary  
Regime’’),   in   which   RESE   is   given   a   special   treatment.,   which   was   later   on  
developed  by  Royal  Decree  2818/1998.  
• Guaranteed  grid  access  for  RES-­‐E  producers.  
• Price  support  for  RES-­‐E  producers.  RES-­‐E  plants  less  than  10MW  will  receive  
a  premium  set  by  the  government  (art.30.4).  The  price  of  electricity  paid  to  
these   plants   would   be   within   a   range   of   80–90%   of   the   average   electricity  
price.  
2. Royal   Decree   on   Special   Regime   (RD   2818/1998)   RES-­‐E   generators   could  
choose   between   two   alternatives;   A   fixed   premium   on   top   of   the   electricity  
market   price   or   a   fixed   total   price   (fixed   feed-­‐in).   Generators   supplied   the  
electricity   to   the   distributor,   who   paid   the   premiums   but   passed   these   to   the  
Energy  National  Commission  (CNE)  and,  finally,  to  the  end  consumer.  
3. Royal  Decree  436/2004:  RES  generators  may  sell  their  electricity  to  
distributors  or  directly  to  the  market.    In  both  cases,  support  is  tied  to  the  
average  electricity  tariff  (AET).  
4. Royal  Decree  661/2007:  Decouples  RES  support  from  the  AET  updating  it  to  
the  Consumer  Price  Index  (CPI).  A  cap  and  floor  system  for  RES  support  
levels  is  implemented.  
 
At  the  moment  of  implementing  a  Feed  In  tariff  System  (FIT)  system  in  1997;  
there   were   three   possible   options,   the   FIT,   a   tendering/bidding   system,   or   a  
combination  of  both  depending  on  the  technology.    Countries  with  a  big  influence  in  
the   Spanish   policy   such   as   Germany,   had   already   implemented   an   FIT   system   and  
others   like   Denmark,   had   a   combination   depending   on   the   technology   (tender   for  
off-­‐shore  wind  and  FIT  for  others),  Spain  opted  for  an  FIT  system.    RES-­‐E  generators    
saw  the  FIT  reform  with  good  eyes,  as  it  would  give  them  a  warranty  that  they  could  
sell  the  electricity  they  generated  at  a  higher  price  even  if  electricity  prices  fell  and    
social   and   political   opposition   was   regarded   as   unlikely   as   the   increase   RESE   would  
carry  on  more  employment  and  environmental  benefits  (Spain  unemployment  rates    
(1)  Some  of  the  conclusions  written  have  been  taken  from  the  article  “Ten  years  of  renewable  electricity  

policies  in  Spain:  An  analysis  of  successive  feed-­‐in  tariff-­‐reforms”  by  Pablo  del  Rio,  October  2007  
at  that  time  were  more  than  double  than  the  EU-­‐15  average).    With  regards  to  the  
end  consumer  they  would  be  unlikely  to  complain  as  the  increase  in  the  electricity  
bill   would   not   be   too   high,   at   least   initially   (due   to   the   low   %   of   RES-­‐E   at   the  
beginning)   and   most   of   them   ignored   how   much   they   were   paying   on   their  
electricity   bills   (Hernandez,   2008)   and   at   the   same   time,   even   if   they   knew   they  
would   be   unlikely   to   make   noise   and   organize   against   the   system,   general   press  
focuses  more  on  the  environmental  impact  of  the  RES-­‐E  paying  special  attention  on  
CO2   emissions   and   specialized   economic   press   has   a   much   lower   number   of   readers  
(according   to   the   General   Survey   on   Media   Sources,   GEM   2007,   general   newspapers  
had  15  million  readers  while  specialized  economic  press  only  226,000  readers).        
The  successive  reforms  with  RD  436/2004  and  RD  661/2007,  had  two  main  
goals;  encourage  RESE  investment  (given  its  alleged  benefits)  but  without  leading  to  
an   excessive   windfall   profits   for   RES-­‐E   generators   and   an   unbearable   financial  
burden  for  consumers.    That  is  why,  the  government  decided  to  review  annually  the  
prices,   at   which   electricity   would   be   sold   to   RES-­‐E.     A   system   setting   long-­‐term  
support  could  trap  the  government  into  the  decision  with  an  excessive  support  level  
in  the  future.    But,  according  to  a  statement  in  2002  and  2003  from  the  Renewable  
Energy   Producers   Association   (APPA)   it   was   regarded   as   a   major   drawback   of   the  
system,  not  knowing  what  the  revenue  would  be  during  the  lifetime  of  the  plant  was  
considered  a  significant  risk  for  investors.    
The   Spanish   Government   approved   the   REP   2000-­‐2005,   with   the   goal   of  
achieving   12,1   %   of   the   primary   energy   from   RES,   30,3   %   of   the   total   electricity  
consumption  from  RESE,  and  5,83  %  from  the  total  gasoline  and  diesel  consumption  
from  biofuels.    In  order  to  achieve  those  targets  they  approved  a  package  of  financial  
incentives  for  each  kind  of  RES  technology  shown  on  the  table  below.      
 
Thousands    
Period  2005-­‐2010  
Euros  
Electric  bonuses   Tax  Incentives  
Investment   Public  
Technology  area   FIT  (all  the   Exemption  Special  
Total   aid  
period)   Taxes  
Hydroelectric   950.063   0   189.062   0  
Wind   11.756.391   0   2.598.870   0  
Biomass  Industrial  Thermal   54.577   0   0   0  
Biomass  Domestic  Thermal   710.097   284.039   0   0  
Biomass  Electricity  Applications   1.964.596   0   1.059.922   0  
Biofuels   1.156.830   0   0   2.855.095  
Biogas  Electricity  Applications   119.658   0   49.425   0  
Solar  Thermal   2.684.611   348.078   0   0  
Solar  Thermoelectric   2.162.500   6.200   559.514   0  
Solar  Photovoltaic  (Standalone)   165.107   36.324       0  
Solar  Photovoltaic  (Grid  connected)   1.874.211   6.299   499.415   0  
TOTAL   23.598.641   680.940   4.956.208   2.855.095  
Source:   “Study   on   renewable   energies   in   Spain   Recommendations   for   strategic   guidelines   after   2006,  
developed  by  DGICO  consulting,  CE160AT024”  
 
 
 
Development  of  RES  industry  (2)  
 
  Due   to   the   favorable   regulatory   framework   and   the   financial   incentives   set  
up  in  the  REP  2005-­‐2010,  the  Spanish  RES  industry  had  a  great  development  in  the  
last  years,  by  2009:    
 
• Created  59,303  direct  jobs  and  indirectly  40,547  jobs  in  other  sectors,  even  
though   20,00   jobs   were   lost   in   comparison   with   2008   mainly   in   the  
photovoltaic  sector.    
• Contributed   directly   to   the   Spanish   Gross   Domestic   Product   (GDP)   with  
6,170.5  Million  Euros,  indirectly  2,355.1  Million  Euros  were  generated.    This  
had  a  total  contribution  to  the  Spanish  GDP  of  0.81  %.        
• Decreased   the   import   of   fossil   fuels   in   10.7   Million   Petroleum   Equivalent  
Tons  (PET)  for  a  value  of  2,137  Million  Euros,  affecting  in  a  positive  way  the  
Spanish  GDP  in  around  0.2%.  
• Exports  amounted  a  total  3,014.6  Million  Euros.  
• They  decreased  28.5  million  tons  of  CO2  emissions  and  a  total  of  113  million  
tons   of   CO2   in   the   accumulated   period   from   2005   till   2009,   saving   374.7  
million  euros  in  2009  considering  a  price  of  the  ton  of  CO2  of  13  Euros/ton.    
• The  use  of  RES  decreased  the  emissions  of  Nitrogen  oxides  (NOx)  and  Sulfur  
Oxides   (SOx)   having   a   positive   effect   on   the   health   of   the   Spanish   Citizens  
saving   982   thousand   days   of   life   and   avoiding   an   expense   from   the   social  
Security  of  148  Million  Euros.    
   
Biofuels  
 
The  Ministry  of  Industry,  Tourism  and  Trade  issued  a  Ministerial  Order  ITC  
2877/2008   establishing   a   mechanism   to   promote   the   use   of   biofuels   and   other  
renewable   fuels   for   the   transportation   sector.     According   to   this   ministerial   order,  
the   petroleum   operators   had   to   certify   the   substitution   in   2009   of   3.4%   of   the  
gasoline   and   diesel   fuels   for   biofuels   and   4.78%   in   2010.   This   target   was  
accomplished,  as  it  was  cheaper  for  the  petroleum  operators  to  consume  these  fuels,  
than  paying  the  fines,  0.2  million  Tons  of  Bioethanol  and  1  million  Ton  of  Biodiesel  
were  consumed  during  2009.      
Spain  had  enough  production  capacity  to  cover  the  demand  of  biofuels  but  as  
international  Biodiesel  prices  declined,  it  was  cheaper  for  the  petroleum  operators  
to  import  it,  than  consuming  the  local  one,  so  29%  of  the  Biodiesel  consumed  came  
from   other   countries   like   the   United   States   or   Argentina,   while   75%   of   the   Biodiesel  
Spanish   production   plants   were   not   in   operation   and   only   covered   71%   of   the  
consumption.     With   regards   to   Bioethanol   the   production   was   higher   than   the  
consumption  so  130,000  tons  were  exported  to  other  countries.      
Biofuels   had   a   contribution   to   the   Spanish   GDP   in   2009   of   209.1   Million  
Euros   in   a   direct   way   and   141.1   Million   Euros   in   an   indirect   way   making   a   total  
contribution  of  350  Million  Euros.    
(2)  Macroeconomic  study  of  the  impact  of  RES  in  Spain,  APPA,  developed  by  Deloitte,  2009  
  
Bonus  in  the  electricity  tariff  
   
   In   the   last   years   the   Photovoltaic   industry   had   a   great   development,  
decreasing  significantly  the  cost  to  produce  electricity  through  this  technology.    
 
 
                         Cost  of  Photovoltaic  panels  (€/KWp)                                                                      Cost  of  investment  (M€/MW)  

   
Source:  Spanish  Ministry  of  Industry,  Tourism  and  Trade  “Renewable  Energies,  situation  and  objectives,  
2010”.  
 
In   2008,   the   Spanish   government   approved   the   Royal   decree   1578/2008   of  
retribution   for   the   production   of   electric   energy   through   Photovoltaic   solar  
technology   for   installations   after   the   established   date   in   Royal   Decree   661/2007.    
This   regulation   created   a   frenetic   movement   in   the   photovoltaic   industry,   all  
investors  hurried  up  to  have  all  their  installations  ready  before  the  due  date  which  
was   in   October   2008   in   order   to   benefit   from   the   tariffs   established   in   Royal   Decree  
661/2007.    In  2007  the  total  installed  capacity  was  687  MW  and  during  2008  more  
than  2,300  MW  were  installed  and  in  2009  only  99,01  MW  were  installed.  
In   2009   when   all   the   photovoltaic   installed   capacity   started   to   operate,   there  
was  a  significant  increase  in  the  total  bonuses  that  RES  received  amounting  a  total  of  
5.045   Million   Euros,   while   in   2008   they   received   2,065   Million   Euros.     73.9%   of   this  
increase  was  due  to  the  photovoltaic  industry.      
In   contrast   with   the   development   of   the   wind   power   industry,   the  
photovoltaic   industry   developed   so   quickly   that   didn’t   give   time   for   an   auxiliary  
industry   to   develop   increasing   significantly   the   amount   of   imports,   during   2008,  
62%   of   the   photovoltaic   cells   and   modules   were   imported   amounting   a   total   of  
5,182   Million   Euros.     In   addition,   the   photovoltaic   industry   accounts   for   the   larger  
number  of  installations,  making  it  expensive  to  connect  them  to  the  National  Grid.    
 Due  to  all  these  factors,  photovoltaic  industry  accounts  for  a  53%  of  the  over  
cost   from   RES   while   only   producing   11%   of   the   electricity   generated   by   RES.  
Further   on,   while   electricity   prices   in   Spain   for   wind   energy   are   in   the   average  
worldwide,   for   photovoltaic   industry   it   ranks   between   the   highest,   even   though  
Spain   is   the   European   country   with   more   sunlight   hours   and   more   intense   solar  
ration.    
 
 
Country   Wind  Power   Photovoltaic  
Spain   a)   Pool   +   Bonus.     Next   20   years   a)   €450/MWh   for   the   next   25   years,  
Average   tariff   for   the   last   5   years   €350/MWh for the coming ones, RD
€84  /MWh.   661/2007).
b)  Tariff  €75/MWh  for  20  years  (RD   b.1) €295/MWh cap for 25 years (RD
661/2007)   1578/2008).
b.2) €265/MWh floor for 25 years (RD
1578/2008).  
China   €56-67 MWh   €121 pilot projects  
Japan   €73-­‐89  MWh    
Germany   €92 MWh for 20 years   €287-395/MWh for the next 20 years  
France   €82/MWh first 10 years, the rest €310-­‐380/MWh  floor  and  cap  for  the  next  20  
depending on load factor, €28- years    
82/MWh  
Italy   €85 MWh   €350-390MWh, not integrated
Photovoltaic energy, period 20 years.  
Poland   €90MWh   N/A  
Source:  Own  elaboration,  data  taken  from  Spanish  Ministry  of  Industry,  Tourism  and  Trade  “Renewable  
Energies,  situation  and  objectives,  2010”.  
 
  According   to   data   from   EUROSTAT,   from   1998   till   2009,   the   Spanish  
electricity  tariff  has  increased  in  36.8%  for  domestic  uses  being  5%  higher  than  the  
European   Union   average   and   ranking   fifth   between   the   most   expensive.     For  
Industrial   purposes,   Spain   has   the   second   most   expensive   electricity   tariff   in   the  
European  Union  having  suffered  an  increase  of  77.1%  from  1998  till  2009  and  being  
16.7%  higher  than  the  European  Union  Average,  
  This   increase   is   due   to   the   high   Tariff   deficit   in   the   Spanish   electricity   sector,  
according   to   the   Renewable   Energy   Producers   Association   (APPA),   there   is   no  
relation  between  the  tariff  deficit,  the  bonuses  received  and  the  increase  in  the  use  
of  RES.  
 

 
Source:  Macroeconomic  study  of  the  impact  of  RES  in  Spain,  APPA,  developed  by  Deloitte,  2009  
 
According   to   APPA,   from   2005   till   2008   the   savings   coming   from   avoiding   Green  
House   Gas   Emissions   (GHG)   and   from   avoiding   imports   from   fossil   fuels   is   higher  
than   the   bonuses   received   from   RESE,   only   in   2009   the   amount   received   from   the  
bonuses  were  higher  but  due  to  three  reasons;  the  decrease  in  the  price  of  the  ton  of  
CO2,   the   lower   prices   of   fossil   fuels   during   2009   and   the   high   amount   of   bonuses  
received  b  y  the  photovoltaic  industry.  
 
 

   
Source:  Macroeconomic  study  of  the  impact  of  RES  in  Spain,  APPA,  developed  by  Deloitte,  2009  
 
Recently,  The  Spanish  Government  has  issued  a  new  Royal  Decree  14/2010  
to  establish  urgent  measures  to  reduce  the  tariff  deficit  in  the  electric  sector.    This  
decree   will   limit   the   number   of   hours   in   which   the   Photovoltaic   plants   can   be   in  
operation   until   2013,   reducing   the   number   from   2,500-­‐2,100   hours   per   year   to  
1,700-­‐1,250  depending  on  the  type  of  installation,  this  means  that  they  will  reduce  
their  benefits  in  a  30%  during  the  next  three  years.      Putting  investors  who  already  
got  loans  in  a  very  difficult  situation  and  compromising  the  jobs  of  200,000  people.    
According  to  an  interview  in  La  Vanguardia  newspaper,  Javier  Garcia  Breva,  
President  of  renewable  foundation,  explained  that  the  reason  of  the  tariff  deficit  is  
the   way   electricity   is   traded   in   the   Spanish   market,   when   there   is   low   demand  
Nuclear   power   plants   have   the   priority   (due   to   the   fact   that   they   can   not   stop   the  
production),   RES   follow   and   then   combined   cycle   natural   gas   plants.     This   means  
that  many  of  the  plants  powered  by  natural  gas  only  work  at  29%  of  their  capacity,  
specially  now  days  that  the  electricity  intensity  in  Spain  is  decreasing  (13%).    So,  the  
government  has  to  expend  money  on  them,  in  order  to  keep  the  plants  for  whenever  
they   are   necessary,   plus   subsidies   to   use   nationally   produced   coal,   which   is   more  
expensive   than   the   imported   one.     At   the   same   time   Nuclear   and   hydropower  
generation   plants   have   already   paid   their   investment   and   have   a   competitive  
advantage  with  other  RES.      
 
Conclusions  
   
  RES  have  shown  to  be  a  feasible  option  to  solve  Spain’s  energy  problems,  by  
2020   the   cost   of   electricity   produced   by   RES   would   be   cheaper   than   the   one  
generated   thorough   other   fossil   fuels;   106.99   2005   Euros/   MWh   by   RES   and   108.43  
Euros/MWh   for   natural   gas   combined   cycle   plants.     In   addition   Spain   has   an  
emission   cap   with   regards   to   GHG’s   so,   in   case   those   natural   gas   combined   cycle  
plants  had  to  include  a  Carbon  Sequestration  System  the  price  of  each  MWh  would  
jump  to  124,45  Euros.      
  But  in  order  to  continue  increasing  the  energy  produced  by  RES,  a  coherent  
and  stable  regulatory  framework  must  be  set,  reducing  the  electric  tariff  deficit  and  
increasing   the   confidence   of   investors   in   these   technologies,   instead   of   changing   the  
regulations  with  retroactive  effect  every  two  years.    The  increase  in  RES  must  also  
be   steady   as   it   happened   with   the   wind   power   energy   avoiding   “bubbles”   like   the  
one  created  in  the  case  of  Photovoltaic  industry,  with  a  tremendous  increase  in  one  
year,  but  based  on  the  bonus  received  by  the  Government.  
  As  Jose  Maria  Gonzalez  Velez,  President  of  APPA,  stated  in  a  recent  interview,  
“the   actual   energy   generated   right   now   by   RES   is   irrelevant,   the   most   important  
thing  is  the  development  of  the  technology  that  can  be  used  in  the  future”.      
Spain  is  really  taking  the  lead  in  the  RES  field  and  might  get  good  results  for  
the  future,  but  has  to  take  care  and  not  pay  the  “beginner's  blunder”.    Especially  in  
this  moment  of  economic  crisis;  with  the  highest  unemployment  rate  since  1996,  the  
reform   of   the   retirement   pensions   and   huge   budgetary   constraints   all   across   the  
government.