Renewable Power Subsidies

Spain's Solar PV Investment Bubble

This study provides a detailed exploration of the events leading up to, during and after the notorious Spanish solar PV bubble—when a sudden and unexpected burst of investment in solar PV led to skyrocketing policy costs, and ultimately resulted in the government taking retroactive measures to reduce the subsidy promised to developers.

The most important lesson is a simple one: cost control matters. A renewable energy subsidy that does not incorporate cost control mechanisms is a risk for the entire sector. The hardest lesson is that there is no obvious way to manage a crisis if it emerges. Mistakes happen. And when they do, there is no clear good practice for how to balance taxpayer or ratepayer interests against the need for a stable renewable energy industry. Three principles emerge from Spain’s experiences. First, to design policy in a way that avoids any kind of cost crisis. Second, to ensure that appropriate tracking mechanisms are in place so that government can detect and react to problems promptly. Third, if neither of the prior two strategies have been pursued, and a crisis occurs, to resolve the crisis in a way that seeks to limit the damage as best as possible.

Research Type: 
This article is part of the series Case Studies.