Solar's great subsidy-free test

Short of cash but rich in sun, Spain is about to test the future of solar power as developers forge new projects even after the country culled all support for renewable energy in January.

The notion that solar will soon compete with fossil fuels without subsidies, and help crack global challenges of energy security and climate change, has been around for several years. Now the scene is set finally to test the theory.

Subsidies were a natural target in Madrid's fight to hack back debt, given that its past energy support has left it nursing a €30 billion ($37 billion) liability.

Slumping solar equipment prices have sharpened anticipation of an era of unlimited, low-carbon energy which will ultimately make nuclear and fossil fuel power obsolete. Solar power so far accounts for less than 1 per cent of the world's electricity.

Spain is the ideal test: as well as now having zero subsidies, the country has the strongest solar radiation in Europe alongside Portugal and southern Italy, plus local governments anxious to grab jobs and inward investment. In the past three months developers have announced plans for five massive projects aiming to compensate for a lack of financial support with sheer economic scale.

No-one supposes that solar power is about to become competitive everywhere. Its supporters argue it should be supported in any case, because it is zero-carbon and less polluting than burning fossil fuels. But proof that it could stand on its own feet would boost a global sector whose manufacturers at best are struggling with over-capacity, squeezed margins and dwindling government support, and at worst going bankrupt or being mothballed. And proven, self sufficient solar power may make the prognosis of a world struggling to make ends meet, with a looming energy crunch and ‘peak everything', appear a little less bleak.

Solar developers have announced plans for at least five utility-scale PV projects. These should be viewed sceptically: the plans are light on detail, lighter on commitments, and should be seen in the context of cash-strapped authorities eager to drum up economic noise. In particular, two of the country's sunniest regions Extremadura (southwest) and Murcia (southeast) appear to be facing off by supporting plans each bigger than the last.

Support would be given by expediting permission, rather than financial. Last month, the government of Extremadura said it had signed "a collaboration agreement" with the developer ecoEnergias del Guadiana, to streamline approval for a solar PV park of "more than 500 megawatts (MW)", targeting operation in 2014. That nominal capacity is half a nuclear power plant and more than twice the size of the world's biggest solar PV plant in China.

There are several plans for 500 MW plants in California, all subsidised. Also last month, Extremadura signed an agreement for a 400 MW solar PV project with developers Germany-based SAG Solarstrom and Spain's Valsolar.

In Murcia, the Spanish installation company Andaltia said it signed a memo with module manufacturer SunPower and developers Schneider Electric to build 400 MW, to start construction next year.

In April, the government of Murcia signed a deal with the Spanish arm of Germany's Wuerth Solar GmbH & Co. for the construction of up to 287 megawatts. And in March, Germany's Gehrlicher Solar said it signed a memo with Extremadura to build a 250 megawatt park, starting construction in the second half of next year.

In all, these projects add up to 1,837 MW, about 2 per cent of Spain's installed power generating capacity. But there are many steps and hundreds of millions of euros between signed a memorandum, issuing a press release and building a world record solar park.

There are question marks, for example, over who would buy the power: Spanish consumption peaked several years ago, and the country is already on track to meet a 2020 carbon emissions target. It will come down to economics: Spanish industrial power prices last year were €116 ($140) per megawatt hour, according to Eurostat, while the solar sector is talks about achieving $120 per megawatt hour in the sunniest spots. An industrial energy user would make a profit signing a long-term power purchase deal with a solar park at such prices.

Spanish wholesale power prices are much cheaper however, at around €54 day-ahead baseload, suggesting no incentive for a utility to contract. Either way, it seems there's momentum to build and with solar power prices falling, it's now a question of watch this space.

This article was originally published by Reuters. Republished with permission.