Solar mirror power firms cling to Spanish subsidy

MADRID (Reuters) - Spain slashed subsidies for power from solar panels in 2008, after causing a bubble, and is almost bound to reduce support for bigger solar farms that use mirrors -- but this sector may have the clout to limit cuts.

A 2.6 gigawatt surge in solar panels connected to Spain's power grid last year made it second only to Germany in photovoltaic (PV) power generation.

This sharp growth then led to state cuts in tariffs and caps on qualifying plants that hit the worldwide PV industry, which had come to rely on the Spanish market.

Questions now surround prospects for the concentrated solar power (CSP) sector which, unlike PV panels that turn sunlight directly into electricity, uses mirrors to super-heat liquids to drive turbines.

"The caps and subsidy cuts for PV power in Spain came as a result of the development of a bubble in the sector, we cannot rule out the possibility of a bubble developing in CSP," Alex Toledo, Iberian energy team manager for BNP Paribas Fortis, said.

Spain slashed subsidies for PV generation and placed a 500 megawatt per year cap on the installations eligible for state aid in September 2008.

There are only 232 MW of CSP connected to Spain's grid, but 4.3 GW of plants at different stages of construction are waiting for the government to decide who gets included on a "renewables register" which will give them access to subsidies that pay about 27 eurocents per kilowatt/hour over wholesale power prices.

Although work has barely begun on many of these plants, there are enough nearing completion to make it likely that Spain will overshoot, by a long way, its target to have 500 MW of solar thermal capacity on stream by 2010.

Spain's 500 MW target was set in 2005 when power demand posted annual growth of over 4 percent. A fall of more than 5 percent in power demand in 2009 to date has reinforced views that Spain could face electricity oversupply.

Spain's economic crisis has not just affected power demand, the country's public deficit is expected to top 10 percent of GDP by year-end, which also supports a case for limiting state spending on expensive renewable technology.

CAP PROBABLE

"It is probable that in the future there will be a cap affecting solar thermal technology," said Luis Crespo, General Secretary for CSP lobby Protermosolar.

"In the long term, the subsidies for CSP will have to come down, but we are confident that our research will bring prices down too," Amando Sanchez Falcon Armando Sanchez Falcon, finance director of pioneering CSP company Abengoa said.

CSP is currently expensive even by renewable energy standards: 1 MW of generating capacity costs about 5 million euros ($7.31 million) to install, compared with about 4 million euros for PV and just 1.3 million euros for wind.

However, unlike wind and PV, CSP technology offers a potential for energy storage and economies of scale that few other renewables technologies can match.

"Solar power has huge potential for cost cuts through economies of scale applied to plants," said Crespo.

The scale of investment in CSP plants, which tend to be much larger than PV ones, has mostly restricted players to big league engineers and builders like Iberdrola, ACS and Acciona.

MAJOR EMPLOYERS

These three companies are major employers in Spain's reeling job market and a lobby to be reckoned with if the Spanish government tries to place a drastic cap on CSP.

The business mix of these hybrid engineers and constructors is another bargaining chip in future regulatory talks with the government, as they can design, procure, build and maintain a plant, creating a competitive Spanish product for export.

"Spain is a world leader in the design of solar thermal systems," CSP's Crespo said.

AN example is Seville-based Abengoa Solar, which has invested 50 million euros in research and development since 2007 and receives more U.S. state funding for solar thermal projects than any other company, with five research and development programs running in the country.

Industry experts agree that a cap and subsidy reduction for CSP is likely to be introduced, but no one is prepared to estimate what those cuts or caps might be until the renewables register is published by the government.

The fear persists that the higher the number of CSP projects approved for the existing tariff regime, the harsher the cap or tariff cut on future projects will be.

"At times like these, the government has limited resources to spend subsidizing renewable energy, and the more the cake is shared out among existing CSP projects, the less there will be for future ones," Toledo of BNP Paribas Fortis said.

The renewables register has already missed its official July publication date, and is unlikely to meet its unofficial one for September.

"We are still ironing out errors in the applications to the register," an Industry Ministry spokesman said.

(Reporting by Jonathan Gleave, editing by Anthony Barker)