Energy Transition in Spain – which way forward?

The energy transition in Spain has been experiencing a downfall over the last few years, starting with the abolishment of economic incentives for building new renewable energy generation in February 2013. As early as 2008, a major tariff deficit became apparent, which was estimated at 25.5 billion EUR in 2012. This deficit essentially emerged due to the fact that regulated electricity prices did not completely cover the costs of electricity generation. This underlined the need for major reform of the renewables support scheme if the envisaged energy transition were to continue.

by Alexa Mollicchi, student at Maastricht University and Ignacio Fresco Vanzini, Florent Marcellesi, Ecopolítica

The first European Renewable Energy Directive from 2001 was a stepping-stone for Spain’s influence on and promotion of a clean energy transition in Europe. This influence was mainly due to the fact that Spain already had a target in its national law for an overall 12 percent share of renewables in its energy mix by 2010. In fact, once the Directive became effective, Spain had very little to turn into its legislation. This contributed to creating an environment of trust and confidence in the Spanish market regarding the path it was taking. Moreover, Spain was the first country to adopt support measures oriented towards the production of renewables, namely the FIT and FIP schemes. In general terms, up until 2007, the renewables sector in Spain was doing remarkably well, increasing by 8.9 percent between 2005 and 2006. However, it was also in these years that the problem of the tariff deficit started to emerge; this led to the adoption of policies that rendered the possibility of Spain to become a leader in this sector unachievable.

The 2009 Renewable Energy Directive laid down mandatory renewables targets and the regulation of three different sectors: electricity, biofuels used in transportation, and heating and cooling. The first sector is where Spain experienced the most significant growth. In fact, according to information the Spanish government shared with the European Commission on April 2016, share of renewables in the interim target period of 2013-2014 was 37.8% of the electricity mix, while for the renewable heating and cooling sector the share was 15.8%. In the transportation sector, the share was only 0.5%, far below the 10% target. Overall, the renewable energy consumption in 2014 was 16.2%, well above the goal of 12.09% for the 2013-2014 interim target period.

If the same trends continue in the coming years, it should be relatively easy for Spain to comply with its 2020 targets. However, a number of factors such as the evolution of the economic crisis, the lack of a credible energy strategy, and the total tariff deficit reaching the astounding amount of EUR 25.5 billion, are leading Spain into a period of stagnation and creating considerable uncertainty about the country's ability to reach these goals.

In order to diminish electricity costs and the tariff deficit, the government suspended the support measures to newly built energy plants in January 2012. Eventually, this led to a retroactive elimination of renewable support schemes in 2013, putting at risk the main support for renewable electricity generation and blocking the access to finance new plants. Cutting support measures for renewables was based on the assumption that the deficit was due to high investment costs in renewables. However, other important factors contributing to the deficit were the aid schemes for coal-fired power, or the failure to adapt the electricity tariff to the cost increase of conventional power around the year 2000. In addition, a new self-consumption decree and tax (publicly known as the "Tax Solar Decree") was approved in October 2015. As a consequence, prosumers have seen their right of access to the grid and a fair market price restricted. These hostile measures demonstrate a lack of coherence with the EU's energy policy for 2020, and the compromises made in Paris during the COP21.

As an important consequence of these government measures, however, is that Spain might not be able to comply with its national 2020 targets. This is not only disappointing for producers‘ efforts but also for the overall strong position Spain held in this sector. Additionally, these measures have highly contributed to the boosting of energy prices, leading to a worrying situation with regards to energy poverty for about 10 percent of the Spanish population that cannot afford the high electricity bills. Given the importance of the energy sector for the national economy, there is no doubt that a clear, coherent and long-term policy perspective is necessary.

In a country with an energy dependency rate of about 72%, cutting support measures cannot be seen as an appropriate decision. Spain should be deciding which energy policy it wants to implement on a long-term basis. Instead of doing so, Spain is currently only applying short-term actions aimed to mitigate the efforts of the economic crisis and to reduce the tariff deficit, without projecting any further goals beyond that.

The revision of the EU Renewable Energy Directive by end of 2016, together with the actions to be taken in line with the Paris agreement from 2015, might encourage Spain's transition to a low-carbon energy system. Spain could take further measures, for example the following:

Maintain public audits of the tariff deficit

Following the opening of an infringement procedure by the European Commission, the (interim) Spanish government approved in February 2016 the first decree regulating energy audits for large companies (>250 employees) to evaluate their energy efficiency. However, the Spanish energy system is a black box regarding the debts generated and its real costs. In order to promote a proper reform and transparency, two additional audits are necessary. First, a tariff deficit audit to analyze the political decisions and responsibilities that led to the accumulation of the tariff deficit and the exact amount owed. Second, an electricity sector audit of every cost attributed to the electricity tariff, as well as the definition of the guidelines determining the price of kWh for the different electricity tariffs.

Erase legal barriers for self-consumption of renewable energy

Spain should erase the barriers to self-consumption of renewable energy and set out the net-metering scheme ensuring that consumers who operate PV systems receive credit for any electricity their systems feed into the grid. While this scheme already exists in many countries throughout Europe, the discussion is still ongoing in Spain.

Change the industrial production model

Energy transitions essentially mean a shift from high energy consumption and CO2 emissions towards a model based on low energy consumption and CO2 emissions, but one which creates sustainable well-paying jobs for many. The key sectors for such “green jobs” are:

  • Agriculture, through the promotion of organic agriculture and relocation of production and consumption;
  • Energy efficiency, through better building renovation and thermal insulation, equipment of renewables facilities and the installation of more efficient energy systems. These energy efficiency measures could save Spain about 39 billion EUR by 2050; and
  • Sustainable Transportation, through promoting greater use of railway transportation of goods from currently 3.2% to 10% by 2020. The transportation sector represents 40% of final energy consumption with 30% CO2 emissions and is thus a vital sector to be tackled in this regard.

Democratize the energy sector

Energy transitions imply a bigger democratic control over the energy sector. It is thus imperative to regulate the practice of revolving doors. In Spain, high-ranking politicians have become part of companies in the traditional electricity industry, such as former Presidents Felipe González and José María Aznar. This phenomenon explains the high level of mistrust towards many governmental energy policies, as this often leads to policies that align with the interests of the old electricity utilities. In order to put an end to this practice it is necessary to introduce a cooling off period to avoid conflicts of interest.

The above recommendations can contribute to deepening the ecologically and socially needed energy transition, and restore Spain’s leading position in renewable energy.