Renewable Energies, Employment and Development

Published on: Saturday, 07 April 2012

The Spanish power tariff deficit is the difference between what we pay as consumers for electricity and what it actually costs electric companies to produce it. This deficit occurs because the price set by the government is lower than the cost to produce electricity recognized by the government. Thus, in order to prevent a rise in electricity prices, for years (since the introduction of Law 54/1997) the system has been selling electricity below cost, and the accumulation of debt has turned into an economic problem in need of urgent revision and adjustment.
The beginning of the deficit dates back to 2000, and has its structural origin in the unsuitable regulation instituted in 1997. At the beginning of the 21st century renewable energies accounted for just 5 % of total electrical power generation, and therefore blaming them for the total sum of the deficit is simply erroneous. We need only to compare the current debt of 24 billion euros with the 605 million euros obtained from solar thermal technology up until 2011 to see that renewable energies, particularly solar thermal power, have little influence on the deficit and a lot to do with giving a major boost to a sector with tremendous prospects for the future.
Implementation and promotion of renewable energies leads to important environmental and economic benefits. Renewables attract private investment and foreign capital, generate employment–150,000 jobs in 2010 and double this figure by 2020–, reduce dependence on foreign energy sources and spending on fossil fuel imports, and prevent the release of tons of CO2, achieving savings on emission rights totaling 467 million euros in 2010.
Spain is currently at the forefront of a growing sector that is committed to innovation and clean development. It has the technology and capability to export the technology and thereby become the indisputable leader at a particularly sensitive time for the planet and the energy future. Constructing and upholding policy to back renewable energies represents a step forward towards the future, economic growth, and independence from foreign energy sources.
Felipe Benjumea, chairman of Abengoa, analyzes the power tariff deficit problem in depth, including its origins and possible solutions, and expounds upon supporting an industry which he himself spearheads in the article titled “Renewable Energies, Employment and Development”, published by Spain’s daily newspaper ABC. We have reproduced the article here due to its interest and relevance.
Renewable Energies, Employment and Development
The energy model currently in existence in Spain cannot be sustained over a long period of time. It is based on an 80% contribution from fossil energies — oil, coal and gas- , practically all of which are imported. This dependence on foreign energy sources represents a serious burden for the trade balance and security of the energy supply and therefore poses a threat to national security. We depend on a handful of highly unstable countries that manipulate production and prices according to interests far removed from our own. And while these reasons alone are solid enough to bring about a change in the model, even more powerful is the fact that fossil fuels are the cause of most of the greenhouse gas emissions that give rise to global warming and climate change. Failing to combat the causes behind Earth’s rise in temperature would have a serious effect on the species that inhabit our planet, entailing economic costs far beyond the measures needed to mitigate this impact.
For all of these reasons, the European Union has embarked upon the path towards a renewable energy-based energy system. Spain has undertaken a commitment to obtain 20% of its energy from renewables with respect to total consumption by 2020, which means doubling the present share. Likewise, in its “Energy Roadmap 2050”, the European Commission has defined a level of penetration of renewable energies of 25% by 2030 and 55% by 2050. These objectives go hand in hand with the increasing role of electricity, of which between 65% and 97% should come from renewable sources by 2050. We need to double production of renewables during this decade and further increase production up until 2050.
There are two approaches to addressing the necessary evolution towards a renewable energy model. One option, the most prevalent in our history, is to wait for others to develop the technology and then acquire it from them. The other possibility, which has historically turned the most developed countries into leaders, would be to capitalize on the tremendous opportunity to boost the economy and generate employment posed by participating at the front line of development and exporting technology, systems and projects to others. The conditions are right at this time for taking the latter tack. For the first time in its history, Spain occupies a position of leadership in a major technological-industrial sector of growing importance worldwide. In our country, the renewables sector directly employs over 120,000 people, generates 1% of GDP, and invests 2.67% of its contribution to GDP towards R&D, which represents more than double the national average. The level of this Spanish leadership varies according to the different technologies. We are among the most advanced nations in wind power development, and we are the global leaders in solar thermal technology. Recognition of this leadership can be found in numerous international journals and even in speeches delivered by the U.S. president.
Leadership in thermoelectric solar technology is the result of factors such as: a high level of solar radiation, sound R&D policy, well-constructed regulation, and companies that took the risk to invest in this technology. The solar thermal industry employs 25,000 people in Spain, with the vast majority of jobs found in regions with higher unemployment rates; it enabled a reduction in imports in 2010 totaling 150,000 tons of oil equivalent, an amount that will be ten times higher by 2015; and in the same year prevented the release of more than 300,000 tons of CO2. Spanish companies are building more solar thermal plants abroad than inside Spain. This leads to the virtuous circle of maintaining higher value-added activity in our own country with the resulting development in other sectors, payment of the corresponding taxes, job creation, and the exportation of cutting-edge technology.
An intense debate has arisen in recent weeks around the “Tariff Deficit” of the electrical system. That is, the accumulation of debt contracted with major electrical power generation companies due to the difference between estimated electrical system costs and the revenues obtained from commercial operation. The sum total of the accumulated deficit, – over 24 billion euros- underscores the magnitude of the problem and the pressing need for a general revision of electrical system costs and revenues. In light of the situation, some, out of self-interest, have accused renewable energies, especially solar thermal power, of being the cause of the problem. Nothing could be further from reality. The power tariff deficit has been running since the year 2000, when renewable energies accounted for 5% of production. If we compare the 24,000 M€ deficit with the 605 M€ that came from solar thermal power up until the year 2011, we can see that attributing the abovementioned deficit to solar thermal energy is utterly absurd. And equally preposterous is attempting to solve the problem by looking at the array of renewables whose total revenues represent only 15% of the total costs of the electrical system.
The origin of the deficit is found in the unsuitable regulation derived from the 1997 Electric Power Act, which has allowed a gap between market prices and the recognized costs of the system. Power generation companies at the time agreed to defer their revenues in a context of highly favorable regulatory and deficit financing conditions. Since then there are a number of payments regulated under the ordinary electricity generation regime that are much more significant than the premiums for renewable energies and which are the main causes of the deficit. Noteworthy among these are the “Costs of Transition to Competitiveness” recognized for electric companies at the time and which were passed onto them with an overrun in excess of 3,000 M€ that has never been repaid. And then there are the major windfall profits that go each year to nuclear and hydraulic facilities whose production is paid at a price that is far higher than their costs given that infrastructure investment had already been recovered by companies featuring the mechanisms established under the aforementioned Act. And there are also the extraordinary revenues obtained by these facilities derived from the system of CO2 emission-based payments.
Electrical power generation as a whole comes from a variety of sources in our country as the result of decisions and commitments undertaken within the European Union. Each technology should be compensated according to its costs and degree of maturity. Paying prices like those obtained by nuclear or hydraulic power, far above their costs, amounts to an unjustified subsidy. In spite of owners’ investment recovery, the Spanish nuclear industry still receives 42% more than its French counterpart and 62% more than estimates shown for Germany before discontinuing its nuclear program. Hydraulic power generation harnesses its energy from public channels through concession agreements that are extended without any compensation whatsoever.
Within this context, renewable energies are lowering their costs by rapidly moving up the learning curve, which, in just a few years, will enable them not only to generate indirect benefits that compensate for their higher costs, but will also drive these costs below those of energy obtained from fossil fuels that set the market price. According to a report published last November by the European Association of Academies of Sciences, thermoelectric power generation will achieve costs that are lower than those of fossil-based energy by the next decade. This fact is spurring a host of nations to promote the construction of these types of power plants, and has led the way for Spanish companies to carry out many of these projects. In order for us to continue to make the most of this opportunity to create jobs and boost development, regulation enabling construction in Spain of plants through which our companies can demonstrate their technological advancements is essential. The development of renewable energies embodies a top-level commitment to present and future employment, the environment, the trade balance, and to our independence. Attributing the power tariff deficit to renewable energies is simply erroneous; attempting to avoid future deficit by putting a stop to this activity, a grievous mistake.

Content tagged with: Abengoa | tariff deficit