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.