More bluster than wind power from protectionism
Driving through Don Quixote country in Spain’s Castille-La Mancha region, you are dazzled by the spectacle of wind farms churning out the energy that will save Iberia and the planet and, once you cross into Andalusia, by solar farms and the green jobs of the future.
Except that if things continue as they are in Spain, the world’s poster child for renewable fuel, wind and solar energy may not save us after all.
Spain is the third-largest producer of alternative energy, after the US and Germany; if the relative sizes of its economy and population are taken into account, it is the largest.
Next year wind and solar energy will account for 30 per cent of Spain’s energy matrix. Its wind turbines are a technological wonder: the US imports many of them.
But this achievement is not the result of the healthy interplay of producers and consumers.
Rather, it is a political scheme combining protectionism, mandates and subsidies.
A few months ago, a study by Gabriel Calzada of King Juan Carlos University caused an international uproar when it disclosed that each green job was costing Spanish taxpayers between E540,000 and E1 million ($875,000 and $1.6m), and entailed 2.2 jobs lost or not created because of the misallocation of capital.
Despite E43 billion in subsidies, solar energy is still not a major component of the energy matrix, and Spain has not complied with the Kyoto Protocol on climate change.
Fiscal spending on green energy has created a financial deficit in the power industry as a whole, forcing the government to cut back 30 per cent of handouts to the solar energy producers. Thousands of jobs have been lost, part of the country’s painful 19 per cent unemployment rate.
Because of the politically induced concentration on renewable fuel, other priorities, such as setting up new and better electrical grid connections with France, have been neglected. Red Electrica de Espana, the government-owned company that runs the national power grid, has just put out a report admitting there is excess capacity in the wind power industry: 5 per cent of Spain’s wind energy will be wasted in 2014 because of insufficient demand. Things are expected to get a lot worse in 2016, even allowing for the 3 million electric cars that Spanish authorities (optimistically) project for that year.
This is the result of politics displacing market forces. Starting in the 1990s, the authorities geared a significant part of the nation’s resources towards goals that were political in nature, even if motivated by lofty sentiments. The result has been a bubble of sorts. Spanish utilities are forced to buy all the wind energy available, while wind-farm operators receive a set price or sell at market prices and obtain a big premium. Renewable power operators have had to set up control centres connected to the national grid, the largest being Iberdrola’s, in Toledo, an impressive affair.
Spain’s alternative energy industries amount, in essence, to a command economy.
The consequences of the government establishing a command economy for electricity could not have been different than those of other command economies elsewhere.
There was indeed something quixotic about the 300 per cent growth experienced by Spain’s solar energy sector since 2005 and in the fact that about 500 companies got involved in wind farming, attracted by the siren song of captive markets and government largesse (now these companies are shedding jobs too.) Reality was bound to set in sooner or later.
Of course, the government-led rush to alternative energy has imposed heavy costs on competitors. The operators of combined cycle power plants, which run on natural gas, the cleanest fossil fuel, also find themselves with excess capacity due to plants they had built in anticipation of a demand that has been channelled by Madrid’s authorities towards wind. They are fighting back, asking the government to assume responsibility. It could get ugly.
The lessons of Spain’s renewable energy program ought to be taken into account at the Copenhagen summit on climate change. In recent years, many countries, including the US, have touted the Spanish model as an inspiration. They really need to look again.
Alvaro Vargas Llosa is a senior fellow at the Independent Institute and the editor of Lessons from the Poor
Washington Post Writers Group
The Australian
7 December 2009
Tags: Wind power, Wind energy
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