Don Quixote has a Sun-Stroke of Genius

The country that gave us the fictional Don Quixote and his fight against windmills is coming back with a real battle between sun and oil. It seems the government of Spain is singing The Impossible Dream these days. Somehow the idea of charging the Spanish citizens 10 times the going rate for electricity is a good idea. But only when the electricity comes from the Sun. Inevitably this means Spaniards will pray for the rain to fall mainly on the plain and everywhere else, if possible, thereby cutting the cost of the electricity needed to watch The Man of La Mancha on television, or playing the soundtrack on the CD player.

Moreover, there is some truly cockeyed thinking at work in Madrid. Spain wants to switch from oil to solar power to save the country from rising oil prices. It hopes to save the nation from higher oil prices by selling electricity for 10 times the price of electricity from oil. Thus, until oil reaches $500 a barrel, it will remain cheaper than today's price for Sun-made electricity in Spain.

Meanwhile, Spain is exporting its solar technology because it believes the spread of solar technology will lead to less oil use. If Spain is right and oil loses some ground, then, like any commodity facing weakening demand, its price will drop. Therefore, it appears Spain is actually creating a market in which oil becomes less costly while solar power remains insanely expensive. At that moment Don Quixote would put a bucket over his head, point his lance at the setting Sun, put his spurs to Rosinante, and leave Sancho Panza behind to wonder what just happened?

Spanish Solar Subsidy Seduces FPL, Scorches Consumers

May 8 (Bloomberg) -- Spain has turned itself into the world’s biggest builder of solar-energy plants, attracting developers from the U.S. and France by guaranteeing prices that weigh down Spanish consumers.

The government promotes clean fuels by letting generators charge as much as 10 times more for power from the sun or wind than from burning coal. The premium, added to bills of homes and businesses, has spawned a solar-investment boom by utilities, from Florida’s FPL Group Inc. to Electricite de France SA.

As a result, developers now plan enough solar thermal projects to generate the power of nine new atomic reactors, or 14,000 megawatts if all get built, Spain’s industry ministry said. That’s the biggest project pipeline, beating sun-blessed Australia and the U.S., where Congress increased aid this year for alternative energy, an Emerging Energy Research study said.

“Who wouldn’t want to enter a business that’s paid many times more than the market rate, and where the customer is guaranteed for life?” said Gabriel Calzada, an economist and professor at Rey Juan Carlos University in Madrid.

Spanish law forces distributors to buy all clean energy produced in the first 25 years of a plant’s life and resell it to consumers. With little oil and lots of sun, Spain is betting the sacrifice will pay off as fossil fuels get more expensive and need costly emission permits under global-warming treaties.

Forty-two percent of power bills, or 95 euros ($127) for every Spaniard, will cover subsidized clean energy in 2009, the ministry estimates.

‘Heavy Price’

“We’re all paying a heavy price for green power,” said Calzada, an opponent of subsidies.

The government raised rates in May 2007 for solar thermal plants, which concentrate sunlight to make steam for power generation. They now earn about 300 euros a megawatt-hour, seven times the average rate coal- or natural gas-fired plants got this year.

A megawatt-hour supplies about 1,500 Spanish homes for an hour, or about half as many homes in the U.S.

Florida to Spain

Spain’s solar deal was interesting enough for Juno Beach, Florida-based FPL to cross the Atlantic and propose two 50- megawatt solar thermal plants. EDF, France’s biggest power company, raised its stake last year to 90 percent in Fotosolar, a Spanish photovoltaic developer. FPL, the largest U.S. producer of wind power, wouldn’t say which subsidy system it preferred.

“I would not define Spain as more or less attractive, rather it is a new opportunity,” Steven Stengel, a spokesman for FPL unit NextEra Energy Resources LLC, said in an e-mailed response. FPL plans two U.S. plants totaling 325 megawatts.

Neither country gets more than 1 percent of power yet from solar thermal or photovoltaic plants, which use a technology that turns sunlight directly into electricity. Spain installed the most of both technologies last year, trade group data shows.

U.S. Momentum

The U.S. now is regaining momentum lost almost 10 years ago when the government “changed policy, leaving solar technology on the shelf,” said Edward Soler, a business development executive for Spanish builder Abengoa SA. During that decade “Spain underwent a learning curve that was aided by a change in regulations” that improved incentives, he said.

Abengoa, which set up a 20-megawatt solar thermal plant near its Seville, Spain, headquarters, plans one 14 times that size, billed as the world’s biggest, about 60 miles outside of Phoenix to feed local utility Arizona Public Service Co.

In the U.S., where President Barack Obama backed increased incentives this year, 6,000 megawatts of solar thermal projects are under way, said Fred Morse, an official at the Washington- based Solar Energy Industries Association trade group.

Promoters in the U.S. must convince utilities to contract their power, a necessary step for most project financing. Also, they may be reimbursed for 30 percent of the plant’s cost through a tax credit or grant and can apply for federal loan guarantees. They earn no special power rate.

The U.S. can’t catch up until more rules on aid are published, Morse said.

Better Incentives

“The incentives, if implemented promptly and effectively, should greatly facilitate the financing of these plants” in the U.S., said Morse, who prepared the first study on solar energy’s potential as a national resource for the White House in 1969.

In Spain, subsidies already spurred local utility Iberdrola SA of Bilbao and Madrid-based builder Acciona SA to become the world’s largest investors in wind, ahead of FPL and EDP-Energias de Portugal SA of Lisbon, with turbines in more than 20 nations.

Premium prices for solar, wind, biomass and co-generation power will cost Spaniards 4 billion euros in 2009, the National Energy Commission regulator estimates.

Photovoltaic Boom

Iberdrola said today it completed Spain’s seventh solar thermal plant, a 50 megawatt array of cylidrical reflectors in Castellon. The new plant matches the capacity of Spain’s Andasol, the largest thermosolar plant in Europe, owned by Solar Millenium AG and Actividades de Construccion y Servicios SA.

Acciona and Heliosolar of Navarra, Spain, are among a group of developers that switched to solar thermal after doing photovoltaic projects. In two years, so many photovoltaic plants were rushed online that the Spanish government tightened rules for eligibility. For solar thermal, an unlimited number of licenses will be given out until at least 2011.

Developers bank on Spain continuing to force utilities Endesa SA, Iberdrola and Gas Natural SDG SA to buy all alternative energy produced. On especially windy or sunny days, they must ramp down coal- or natural gas-burning plants.

Brent at $40/Barrel

“All the investment in clean energy in the European Union grew from the summer of 2004, when Brent passed $40 a barrel and was giving clear price signals of a tension that wasn’t going to go away,” said Tomas Diaz, spokesman for the Spanish Photovoltaic Industry Association.

Spain’s premium price paid to photovoltaic plants drew in 20 billion euros of investment in those projects in about one year, before the government made the terms less generous in 2008, the trade association’s Diaz said.

“Cash poured in since 2007 as investors fleeing the subprime crisis in the U.S. looked for a safe haven for their money,” Diaz said.

Even the U.S. insurer American International Group Inc., bailed out last year by the Federal Reserve, bought 300 megawatts of solar plants in Spain that it has since sold.