Renewable energy subsidy cuts rattle Spain’s wind energy businesses

Story by Ian Debevoise

Until now, wind power has been a success story like few others in this country.

Turbines meander over hilltops and through fields. They can be seen in the same frame as a crumbling castle on the southeast coast of Valencia. They’ve even been proposed as part of a large wind farm off the shore of the Atlantic Ocean, on the site of the famous 1805 Battle of Trafalgar.

But advocates and industry leaders fear that political decisions brought on by the country’s struggling economy could slow progress considerably only a year after wind power was rated Spain’s top energy source.

The Spanish government announced it would be cutting subsidies for renewable energy from 8.77 billion euros or $11.9 billion in 2010 to 7.63 billion euros, or $10.4 billion. This, as the country tries to meet goals set for 2020 as part of the Climate and Energy Package, which the EU approved in 2007. The package aims to reduce greenhouse gas emissions by increasing the amount of energy from renewable resources.

The cuts couldn’t come at a worse time, according to Rafi Moreno, an energy analyst for the Asociación Empresarial Eólica or AEE, an organization that promotes wind power throughout Spain.

Asociación Empresarial Eólica, or AEE, located here, is a lobby group for wind power in Spain. It also conducts studies on wind power use and other aspects of the sector. Photo by Ian Debevoise.

“Subsidies are a big reason for the boom in wind farms the past few decades. Cuts to these are unfair as companies are losing money they were promised when they invested,” said Moreno.

Wind power in Spain took off in the early 1990s as the government tried to reduce the use of foreign oil and coal. The industry has slowly gained momentum and in 2013 was the leading electricity producer in Spain with nearly 21 percent coming from wind. Spain ranked fourth in total production in the world behind larger countries such as China and the United States, which hold many more wind farms.

Wind energy advocates don’t trumpet the environmental impact of the industry. They talk about the economic benefits, namely jobs. They fear those jobs will disappear when the government cuts back on its investment and notes that this will come in a country with an unemployment rate hovering around 25 percent.

“More than 50,000 people are working in the wind energy field with numbers increasing the past few years,” said Carla Garcia, a spokeswoman for Eolia Renovables, a publicly traded Spanish company created in 2007 and now the sixth largest wind power firm in Spain. “Cuts to subsidies will not just scare the investors but put jobs in a bad economy at risk.”

There could be other financial repercussions. Several Spain-based companies recently received 15 million euros, or $20 million, from the European Union to fund wind power innovation and operations. But the EU has harshly criticized efforts by Spanish leaders to cut investments in the field. Investors are also unhappy because Spain is talking about rolling back projects already promised, according to Moreno.

“Companies are considering legal action against the government because of the promises not kept,” said Moreno.

Others noted that the shift in Spain has been dramatic. In 2010, a government pamphlet highlighted the pros of investing in Spanish wind energy, talking of the growth and stability of the wind sector.

“A bad economy can have many surprises but this was a surprise for thousands of people and the effects were fast,” said Garcia. “Last year Spain had its lowest increase in megawatts from wind power on a year-to-year basis since 1997,” she continued.

AEE, the lobby group, has used the proposed numbers and harder rules about which wind farms can receive subsidies to try and project what wind energy will look like in the coming years. The results are bleak for the sector. The AEE suspects that with the new law, one third of the total wind farms will be without funding and others will see a significant drop in the rate of return on their investments.

While wind power activists and companies worry about the impacts the cuts will have on wind power and the rest of the country, there are some who don’t see this as a bad move.

“Spain is stuck in a slow economy and it calls for drastic measures. Renewable energy subsidies were some of the highest in the world and companies started to capitalize on it. The rich were the ones profiting,” said Antonio Clavo. “We have also seen a spike in electricity cost as Spain now has some of the costliest in the EU,” he continued. Clavo is a professor of economics at CEU San Pablo University in Madrid.

With subsidies cut, companies will have to rely solely on profits from selling electricity to consumers, which could cause electricity costs to rise even higher as investors try to replace the funds missing after the subsidy cuts.

Acciona, a large energy company based in northern Spain near the border of France, announced that its energy department, which is mainly wind, posted a pre-tax profit of 12 million euro, or just above $16 million. That’s nearly a 70 percent drop from the same time last year. The quarterly earnings press release attributed this to energy subsidy reforms which cut funding company-wide by 81 million euro, or $110 million.

The numbers concerning how many jobs were actually created vary greatly depending on which side the of debate a source is. Clavo, quoting a 2009 study that details job creation in renewable energy, stated that 2.2 jobs were lost for every renewable energy one gained. Meanwhile, wind companies and AEE contend that these numbers are no where near the truth.

“There were several parts not taken into account [in those numbers] such as an already declining employment rate in other fields. Also the numbers he used failed to capture the true reach of renewable energy jobs,” said Garcia, of the wind power company Eolia Renovables.

Regardless of the disagreement, Moreno is confident that the progress made so far will ultimately continue.

“I’m sure we will be able to figure our way to more and better wind power in the future,” said Moreno.