Spain gives perhaps the best case example of how a strong feed-in tariff system can either make or break the solar industry in which it is introduced. The Spanish feed-in tariff (FIT) was designed as a mechanism for incentivising investment in solar installations and was introduced in 2007. Traditionally, the high cost of solar plant and installation deterred investors who identified that despite the high levels of solar radiation across the Iberian Peninsular, yields would be minimal at best simply due to high initial outlays.

The FIT is a system which guarantees fixed, premium rates for solar producers who feed electricity in to the national grid. The high rate paid for each unit of electricity is met by the utility companies who in turn spread that cost over their customers. Therefore, in Spain with the introduction of the tariff system in 2007 with the rate of 0.44 euros offered for units of energy fed-in to the grid by solar producers the interest generated in the Spanish photovoltaic (PV) market was overwhelming. Indeed, combined with extensive coverage from the Spanish media along with Zapatero’s PSOE government’s commitment of making Spain the leading producer of solar energy in Europe by 2020, there was a phenomenal boom in the PV sector with the number of solar installations rising dramatically.

The UK government and in particular the Department of Energy and Climate Change (DECC) since passing the Energy Act in 2008 have been moving towards a similar tariff system and in June 2009 announced that they would introduce a Clean Energy Cash Back system in the first quarter of 2010. In order to do so, they have undertaken a meticulous consultancy process in order to ensure that the mechanism which is introduced does exactly what it is intended to do i.e. make the UK solar industry strong and viable in the long term by attracting investment in the young sector. Spain certainly offers an example of how to attract investment in the short term. However, the Spanish example also offers stark examples of how not to set up a tariff system for long term industry health. The essential problem with the feed-in tariff which was established in Spain was that it was unable to cope with market fluctuations which arose as a result of the initial success of the tariff.

A recent report by the New York Times highlighted the failings of the Spanish solar legislation. Problems stemmed from the fact that politicians expected a steady stream of investment over a period of years. However, the massive interest which was generated in the fledgling industry encouraged a wave of investment in the first few months. The massive take up of solar installations was unexpected and caused the Spanish government to reduce solar incentives by 30 per cent without warning. Because the Spanish feed-in tariff failed to be market responsive, many investors who had already ordered deliveries of solar product from China, were left in the situation that they had no market in which to install it. With regards to the Spanish legislation, Julie Blunden of SunPower Corp was quoted in the New York Times,

“The most important lesson, which everyone has learned, is that if you’re going to establish a feed-in tariff, you need to figure out how to make it market-responsive.”

This will be the key lesson for the British government, how to introduce legislation which encourages growth in the new solar industry without setting a tariff level which is too high. In Spain, the government’s level of 0.44 euros was artificially high and therefore created the problem of an influx of investment which the government could not manage. Therefore, when the PSOE government reduced incentives by 30 per cent with many investors having already ordered large quantities of solar plant from manufacturing bases in China, the proverbial rug was pulled right from under them. Talking specifically about the legislation changes which had the detrimental effects on the Spanish PV market Santiago Seage, the CEO of Abengoa Solar SA commented on the situation saying,

“What’s important for the regulation of solar is stability. Unfortunately, up to now, we have had too many changes and if the context changes, you can make mistakes in business decisions.”

Spain has already experienced a dramatic reduction in photovoltaic installation in 2009 with 375MW compared to 2008 installations of 2,500MW. Spain will now fail to live up to its ambitions of becoming the European Union’s leading renewable energy producer by 2020 essentially because Zapatero’s government has neglected the tariff scheme across the country. The introduction of a 500MW project cap along with the withdrawal of essential subsidies has seen the solar industry stagnate and since the new year, decline. Members of the solar industry in the UK will therefore be hoping that the British government emulates the example of Germany rather than Spain in the way that they choose to roll out the much talked about feed-in tariff next year.

China has reinforced its commitment to moving forward to a more progressive, green economy by agreeing with First Solar the construction of a 2GW solar facility in Ordos, Inner Mongolia. The construction of the large solar facility will begin in June 2010 and is expected to be completed by 2014 in a multi-phase operation expected act as a demonstration of the Chinese governments resolve to make giant leaps towards a renewable energy economy.

 With the solar feed in tariff legislation making the headlines in the UK under the guise of the Clean Energy Cash Back Scheme, the Chinese project will be taking advantage of a similar tariff system with the price of electricity guaranteed at a premium rate over a period of years. Tariff systems such as this have generally proved to be extremely effective means of generating investment in new solar sectors.

 Mike Ahearn, CEO of First Solar commented that,

 “The Chinese feed-in tariff will be critical to this project. This type of forward-looking government policy is necessary to create a strong solar market and facilitate the construction of a project of this size, which in turn continues to drive the cost of solar electricity closer to ‘grid parity’ where it is competitive with traditional energy sources.”

Certainly, it is expected that with the Chinese feed-in tariff policy in place, there will be a number of other large investments in the Chinese photovoltaic (PV) market over the coming months and years. China is also the largest manufacturer of PV product needed for solar projects around the world and is therefore attracting much interest from those wishing to provide turn-key products from manufacturing, construction and installation.

“This major commitment to solar power is a direct result of the progressive energy policies being adopted in China to create a sustainable, long-term market for solar and a low carbon future for China. We’re proud to be announcing this precedent-setting project today. It represents an encouraging step forward toward the mass-scale deployment of solar power worldwide to help mitigate climate change concerns,” announced Mike Ahearn.

With China and in particular the capital, Beijing under the spotlight in recent years with concerns over pollution and carbon emissions, China is now making a very powerful statement to the world that they are about to be at the forefront of the solar revolution.

In a bid to increase profitability among its offshore wind farms, China has introduced a feed-in tariff system designed to make the generation of electricity via wind farms economically viable. China has recently been a leading advocate of the tariff system as the Beijing government seeks to diversify both the economy and the means of energy generation. With the New York Times last week announcing that green power is taking root in China, the move to encourage the take up of wind power generation comes as no surprise as the Asian government is supporting all kinds of renewable energy, especially solar and wind.

The Chinese wind feed-in tariff system will inevitably attract investments in the offshore wind generation industry there with the hope that it will enable the clean, wind energy to compete with that generated via coal fired plants. The guaranteed premium rate which will be offered to wind generators will be met by the existing grid operators with the additional cost being spread over all electricity consumers. The idea is that bigger, more profitable wind plants will receive a more generous tariff rate in order to help them catch up with the bigger wind farms.

The tariff payments are set at around 0.51 Yuan the equivalent of £0.05 per unit of electricity fed in to the grid, depending on the size of the wind farm. Compared with the rate paid for coal fired electricity (0.34 Yuan) the wind farms will e set to receive a generous payment. The announcement by the National Development and Reform Commission (NDRC) stated that the scheme will,

“change current inconsistent pricing, foster clear expectations and facilitate investments in the sector”.

The previous system which operated regarding wind power electricity purchasing involved public bidding using low-rate tariffs which did not enable most wind farms to gain grid connectivity, a hindrance which meant that at least 20 per cent of China’s wind power producers were unprofitable. With the feed-in tariff system generally regarded as by far the most effective means of generating capital in green energy, China will be set to succeed in its bid to diversify its economy and become a major player in the world of green energy production.

The New York Time’s headline, ‘Green power takes root in China’ is representative of a dramatic move towards renewable energy which is taking place in China. The giant Asian power has traditionally been known for its use of fossil fuels with a strong media emphasis being given to pollution problems in China’s major cities resulting from coal burning and extensive carbon emissions from vehicles.

Certainly, with the Beijing Olympics of last year, the worlds eyes were focused sharply on the Chinese capital and the seemingly permanent smog covering which acted as a testament to Chinese heavy industry and the proliferation of vehicles in modern China.

However, it is a marked change in Chinese legislation which prompted the New York newspaper to run with the ‘Green power takes root’ line. The change has come in the form of a national renewable energy level stating that utilities must generate 8 percent of their energy by renewable means by 2020. The fact that this 8 percent figure does not include hydroelectric power adds to the importance which the Chinese are now placing on green energy.

The growing awareness of the lack of long-term sustainability in traditional coal energy sources has prompted the Chinese government to take action to maintain China has a major industrial power well in to the future. There has also been somewhat of a frenzy among private companies seeing the opportunities that will undoubtedly present themselves in the Chinese renewable industry, with a growing activity particularly in sectors such as wind and photovoltaic technology which will inevitably boom in China in the near future.

The New York Times was keen to use this Chinese government action to make comparisons with the comparatively weak efforts being made in Washington to spur the renewable sector in the United States. Indeed, in the United Kingdom, with the recent feed-in tariff legislation, members of the green energy industry will be hopeful that government action in the UK will have the same effect it has had on the Chinese market.

The New York Times asserted its almost neurotic view of Chinese renewable growth compared to that of the US by warning,

“You won’t just be buying your toys from China, you’ll be buying your energy future from China.”

China has a target in place to produce 8000 megawatts of energy by wind energy by 2010 which they are set to smash. If China continues apace to move towards green energy, they will surely shame efforts currently being made in the West to develop their own sustainable renewable industries