Solar Subsidy pain in Spain

Spain saw a massive boom in solar installations after the government announced a very generous subsidy on solar energy installations. Beside large funds and companies, large number of small investors also started to invest in solar energy systems, attracted by the steady high long term returns given by the government. Spain’s subsidy scheme was badly designed without safeguards on how the funding would be done given that there was no cap on solar installations. The bureaucrats were too slow to recognize the perils of large numbers of solar installations happening at a breakneck speed. This led to more than 1 GW of solar installations happening at a time when solar system prices were around $10/watt. This meant that the Spanish government was left holding the bucket for billions of euros in subsidies every year for 20-25 years.

The Spanish government also faced a massive fiscal deficit as the European crisis hit the country. The government had no option but to drastically cut the subsidies in a retroactive manner. This was done to control the massive deficit due to energy subsidies. Solar investors in Spain cried foul as the contracts were for 20-25 years, but the rules were changed midway by the government. Similar things happened in Czech as well. Spain is still suffering from the solar energy fiasco as hundreds of small investors face financial ruin. The solar panel and systems sellers have made their money and gone away, while the investors have to wait for the cash flows. These cash flows are now much smaller than what was thought of, which means they are having problems in servicing the debt payments.