Spain’s Solar Pullback Threatens Pocketbooks

Spread knowledge

Justo Cruz Rodríguez faces ruin after investing in solar power in the Spanish town of Águilas.

ÁGUILAS, Spain — Six years ago, Justo Cruz Rodríguez, who runs a small business here designing signs, was looking for a way to generate a steady, if modest, pension for himself and his father.

So when the government passed a law offering attractive rates for solar energy — and guaranteed them for the next 25 years — he mortgaged his house, his father’s house and even his workshop to install half a dozen rows of solar panels in his father’s garden, with the idea of selling his excess electricity.

“It seemed so safe,” he said recently. “It was a government guarantee.”

But the Spanish government has changed its mind. It plans to pay less, a lot less. Under legislation that goes into effect this year, it will drop its per-kilowatt-hour payment system altogether and effectively impose retroactive cuts in payments. It also plans to make solar power producers pay a charge on electricity they generate and use themselves, a measure that angry protesters have named the “sun tax.”

Spain has good reason for wanting to take action. It is facing a growing deficit — about $40 billion now — because it has never passed on the true cost of producing energy to its consumers, a problem that has ballooned with the economic crisis. If it does not do something, that deficit will only grow, experts say.

Energy experts across Europe are watching Spain’s actions closely, however, wondering if they amount to folly. Thousands of solar energy investors large and small will doubtless face insolvency, and perhaps just as worrisome, experts say, the new charges for those using their own electricity may set off a rush by owners of solar panels to find ways to sell or use their electricity without reliance on the national grid at all, further reducing its customer base.

Nor is Spain’s abrupt U-turn likely to go over well with future investors, experts say.

“When a government changes the terms of existing contracts, that’s a bad move,” said Toby Couture, a solar energy consultant with E3 Analytics in Berlin, who believes that the government will have trouble when it wants to develop public-private partnerships to fund water treatment plants, highways or pipelines, for instance.

“There are reasons we live by contract rules,” he said. “If you keep changing the rules of the game, then, after a while, your friends don’t want to play. The government has lost credibility.”

Spain was once at the forefront of the solar energy movement. It barreled into the renewable-energy business, winning over thousands of investors big and small with its guarantees. Experts say the country has already come close to the European Union’s goal of 20 percent reliance on renewable energy by 2020.

But experts say the government never expected so much investment and never came up with a way of paying for it. When the economic crisis hit, in 2008, and demand for energy went down, the deficit widened at an even faster rate.

Spanish officials say they have no choice now but to reduce the payments, which were once offered to spur investment in solar energy but are now considered overly generous, especially since the cost of solar panels has dropped precipitously in recent years.

The new government payment system has left thousands of investors, like Mr. Cruz, 51, in a state of shock.

“I am going to lose everything,” Mr. Cruz said, standing near the panels he thought would make his old age easier. “I will be homeless. At my age, homeless.”

The government has proposed cuts to other parts of the energy sector as well, and has taken other steps to reduce the energy deficit, including asking Spaniards to pay more for the electricity they use. But no other measures are as drastic as the reduction of payments to the nearly 60,000 producers of solar power, 50,000 of which are small-time investors like Mr. Cruz, according to the Spanish Solar Power Union.