Rise and fall of solar energy ambitions in Andalusia, Spain : (2000-2016)

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Graduate School of Social Sciences

Rise and Fall of solar energy ambitions in Andalusia, Spain

(2000-2016)

Author: Sebastián Albella Student number: 11888652 Thesis type: Master Thesis

Programme: MSc Political Economy / Specialization: The Political Economy of Energy Supervisor: Dr. M.P. (Mehdi) Amineh

Second Reader: Dr. L. K. (Laszlo) Maracz Date: 29-06-18

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I would like to specially thank Dr. Mehdi for his extensive and attentive help throughout the writing of my thesis. Also, for his willingness to give me room to chose a topic that is somewhat unusual – Spain and Andalusia´s solar energy not being the focus of much literature in the political economy of energy. His lessons and knowledge have awakened in me a great interest in the endeavours of the states in relation to the political economy of energy, and particularly on the energy transition and the challenges it poses.

Additionally, I would like to thank Pepe Gimenez, partner of the law firm Linklaters in its Madrid office. His expertise on the political economy of energy in Spain has been of great help to the research. He generously walked me through the myriad of legislative changes, and shed light on the effects those had on companies like Abengoa.

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6 Abstract

This thesis sets out to explain the crisis in the development of the solar energy industry in Andalusia, Spain, between 2008 and 2016, as well as the consequences these downturn years have had on relevant actors and acquired know-how. This will be done by using a critical geopolitical theory, helpful in this case to shed light on the state-society complex within Spain and particularly in Andalusia.

It will be claimed in the concluding part of the thesis that the downturn in the development of solar energy has had devastating effects for the potential of solar energy development in Andalusia and Spain. It will be shown how Andalusia (and subsequently Spain) placed itself at the forefront of the investment in renewable energies in the first decade of the twentieth century. It will be explained how Spain was building a comparative advantage in the early stages of the energy transition that could have been instrumental to meet the EU’s climate change and sustainability related targets.

Additionally, the thesis will review how the global financial crisis that started in 2007 took place in Spain, and how consequently the government took restrictive measures on renewable energies subsidies that had a freezing effect to the solar energy development in Andalusia. It will finally review how the lack of development took place between 2008 and 2016, and how these ‘lost years’ resulted in a loss of know-how and strength of the solar energy industry and its potential in Andalusia, Spain.

Keywords

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Maps

Map 1: Spain

- Source: ezilon.com (2009) -

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8 - Source: map-of-spain.co.uk (2003) –

Map 3: Solar Energy Plants in Andalusia, Spain

- Source: Junta de Andalucía (2009) –

PV Plants

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List of maps

• Map 1: Spain 6

• Map 2: Andalusia 7

• Map 3: Solar energy plants in Andalusia, Spain 7

• Map 4: Average radiation on horizontal surface in Andalusia (2007) 25

• Map 5: Large-Scale Power Plants – Installed Power Capacity in European Countries 27

List of Tables

• Table 1: Amount of large-scale PV power plants put into service annually in the period from 1995 to 2008, sorted by country 26

• Table 2: Revenues of Abengoa by geographic origin (2000-2015) 30

• Table 3: Conc. Solar Thermal Power Global Capacity by Country (2005-2015) 33

• Table 4: Unemployment Rate Evolution in Spain and Andalusia (2002-2016) 36

• Table 5: General Government Deficit/Surplus (% of GDP) 39

• Table 6: GDP per Capita in US$ (1990-2007) 40

• Table 7: Current Account Balance (% of GDP) 43

• Table 8: Ratio Housing Price/Household Income – comparison between Spain, UK and US 45

• Table 9: Evolution of the level of activity of each sector with 2010 as a base year 48

• Table 10: Evolution of the tariff deficit in renewable energy in Spain (in million €) 52

• Table 11: Electrical Energy Production from renewable sources. Andalusia & other countries , 2008 (in GWh) 55

• Table 12: Abengoa: Sales and Net Profit evolution (2012-2016) 56

• Table 13: The Plataforma Solar de Almería – Facilities and aerial view 58

• Table 14: European PV cumulative installed capacity by country 60

• Table 15: European PV cumulative installed capacity by country 61

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List of abbreviations

Bn Billions

CAGR Compound Annual Growth Rate EU European Union

FDI Foreign Direct Investment FT Financial Times

GDP Gross Domestic Product GoS Government of Spain

IMF International Monetary Fund

JdA Junta de Andalucía (Andalusian Regional Government) KWh Kilowatt per hour

M Millions

MEI Ministry of Energy and Industry PIIGS Portugal, Ireland, Italy, Greece, Spain

PSA Plataforma Solar de Andalucia (Solar Platform of Andalusia) PV Photovoltaic

RD Royal Decree-Law US United States of America

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Chapter 1

Research Design

1.1. Overview of the research

This thesis sets out to explain the crisis in the development of the solar energy industry in Andalusia, Spain between 2008 and 2016, as well as the consequences these downturn years have had on relevant actors – this thesis will use the cases of Andalusia based energy infrastructure company Abengoa.

Firstly, the thesis will analyse the period between 2000 and 2012 from the perspective of the development of the solar energy industry in Spain and particularly in Andalusia. Andalusia is the southern region of the Iberian Peninsula. It has Portugal as an eastern border together with the Atlantic Ocean. As a western border it has the Mediterranean Sea, and, it is located north of Africa, only separated by the strait of Gibraltar. Andalusia accounts for nearly 17% (33,694sqkm, slightly above Belgium´s) of the total area of Spain and for a similar 17% (8.4 Million) of Spain´s population (Junta de Andalucía, 2017). The region of Andalusia has been at the forefront of the renewable energy expansion in Spain, both wind and solar. This thesis will focus on the

development (rise and fall) of solar energy in the region between the years 2000 and 2016.

After analysing the expansion of solar energy in Andalusia prior to the global financial crisis – that was particularly severe in Spain as it unveiled a real estate bubble with enormous effects on the country’s resources and socioeconomic levels – the thesis will provide an understanding of the Spanish crisis that started in 2008, leading to a re-allocation of the diminishing resources of the State that had a direct impact on the support schemes for renewable energy, of which solar.

Therefore, the thesis will cover the downturn in the development of solar energy, a direct consequence of the crisis-led policy changes in the renewable energy industry. In a negative

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economic spiral, the Government of Spain had to apply severe austerity measures, and the renewable energy subsidies system in place was no exception.

Finally, the thesis will shed light on the aftermath of the ‘lost’ years in the support of solar energy. To do so, the thesis will look at the effects the lack of public support had on private companies, most of them being forced to develop beyond the Andalusian and Spanish borders when they didn’t go bankrupt. This thesis will provide an interesting analysis of the state vs. market dichotomy, and on how the market is disrupted by the State’s policy changes.

Throughout the thesis, the rise and fall of the solar energy ambitions in Andalusia and Spain will be illustrated with the case of Sevilla based company Abengoa, a company that in the years of expansion of the renewable energy in Spain was the absolute leader in the industry worldwide thanks to its continuous innovation and competitiveness. With the downturn of the sector following the suppression of subsidies, Abengoa’s success took a dramatic turn, and the company ended up filing an insolvency procedure of which it hasn’t recovered.

The case of Abengoa and other companies will be of use to assess what were the effects of the ‘rise and fall’ of the solar energy industry in R&D and in the human talent that was created in Andalusia before 2012.

1.2. Research Question

The main question of the research will be the following:

What were the main causes and implications of the crisis in the development of the solar energy industry in Andalusia and Spain?

To structure my research, this question will be divided into six sub-questions:

1. What were the main drivers behind the solar energy expansion in Andalusia and Spain between 2000 and 2008?

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3. What were the main socio-economic immediate consequences following the crisis that hit Spain in 2008?

4. What were the effects of the crisis on the State’s decision making in regard to renewable energy support schemes?

5. How did the solar energy development crisis in Andalusia between 2008 and 2016 take place?

6. What have the consequences of this crisis been in the solar energy know-how in Andalusia?

1.3. Delineation of the Research

This research is narrowed down to one selected source of renewables in general, namely Solar Energy (PV and Thermosolar). The timeframe of the research will be 2000-2016. Geographical delineation will be Andalusia, the focus region, and to a larger extent Spain, the State under which the Andalusian region falls (and of which the Government has the decision power on renewable energy support schemes, fundamental to this thesis). Finally, it is important to take into account that both Andalusia and Spain are embedded in the EU, and the success or failure of an industry in any European region is that of the entire EU.

1.4. Social Relevance

In 2008, Spain presented itself to the world as the pioneering nation in the uprising solar energy transition. Within Spain, Andalusia saw most of the world’s largest solar and thermo-solar plants being built on its soil. The southern region, with ideal solar irradiation metrics, was at the time observed from abroad as a key player in the inevitable energy transition. In this context, dozens of companies were set up in Andalusia, as well as the (still today) leading R&D center for solar energy technologies. One of these companies was Abengoa, in those days a successful

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transnational company based in Sevilla that was hired by the Obama Administration in the US to bring to reality two of the largest solar plants in the world in California, US. Today, Abengoa has almost disappeared. Spain, and particularly Andalusia, have added little new capacity to the existing one in 2008. Spain, once the 3rd country in terms of solar energy generation capacity, is no longer in the top 10.

In November 2017, the Spanish government under president Rajoy presented a new support scheme for energy transition, a message to the wider public and foreign investors that Spain, and hence Andalusia, were back on track.

It is now an opportunistic time to look back and understand what happened in Andalusia – what were the causes of the cessation of development of its solar energy industry and what has been the effect on the private companies and solar energy related institutions that were based in the southern region when the region was a world leader in solar energy. Learning from the mistakes of the past, Andalusia will be able to reposition itself again with strength in the energy transition dynamics.

1.5. Literature Review

This research is focused on the development of renewable energy (Solar) in Andalusia (Spain). Based on this focus, the literature review can be separated into two subfields – policy changes affecting development of solar energy industry and business and economic consequences of the development of solar energy industry in Andalusia between 2000 and 2016.

Policy changes affecting development of solar energy industry

• The amount of literature in the context of policy changes related to renewable energies in Spain has increased significantly. Though there are few specific research papers addressing this issue (Iranzo, Colinas, 2011), less concrete essays on the topic of renewable energies in

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Andalusia also analyse the legislative changes that have triggerd the development of solar energy and its further crisis (Dincer, 2010).

• Literature is to be found on the set-up and suppression of support schemes by the government to foster the renewable energy industry (Ruiz Romero, Colmenar Santos & Castro Gil, 2011)

Business and Economic consequences of the development of solar energy industry in Andalusia between 2008 and 2016

• In this case there are scholar articles available that look at the development of solar energy from an economic standpoint – expansion of related companies and ad hoc R&D

institutions, sociodemographic influence of the solar energy industry development, etc. (Zamorano, 2004) (Dincer, 2010)

• Additionally, besides scholar articles, there is an extensive source of official reports that are tremendously useful in the assessment of the consequences of the rise and crisis of the solar energy development in Andalusia – some of these reports that will play an important role in feeding my research are:

- IEA

- Spanish and European energy think-tanks and solar energy associations reports - Regional Government State of the Energy reports

- Spanish Government official reports (Ministry of Energy)

- Company Reports and official press releases (in my research’s case, Abengoa’s)

Global Financial Crisis and crisis in Spain, causes and consequences

• Several authors cover the causes and consequences of the global financial crisis that started in 2008. Additionally, the crisis in Spain has been widely analysed, so have the main drivers behind the real-estate bubble, which relied on structural maldjustments of the Spanish economy. Royo (2014), Quaglia and Royo (2015), Fernández & Collado (2017) and Garicano

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(2015) have been among the most prominent scholars that have been consulted for this part of the thesis.

• Additionally, because of the transcendence of the Spanish crisis, the economic and financial specialized press has helped in providing concrete examples and illustrative datapoints.

1.6. Theoretical and Conceptual framework

The theory of critical geopolitical economy will be fundamental to guide my research, as articulated by Amineh and Guang (2017), and will be used to analyse the state-society complex within Spain and particularly in Andalusia. The rise and fall of the solar energy sector in

Andalusia is a result of the joint work, cooperation and eventual crash of societal forces, namely the State (through its legislative decisions and royal decrees referring to solar energy subsidies scheme), and the Andalusian society – both the people and the network of private corporations that executed and invested on the basis of the decisions previously taken by the Spanish Central Government. Because the research focuses on development, attempting to understand what caused it to stop after 2012, the geo-economic logic imposes itself as the most relevant in this study, only logical taking into account that part of the research will focus on the consequences for private TNC Abengoa of the developmental downturn. Additionally, lateral pressure will also play a key role, as defined by Amineh and Guang (2017) – “lateral pressure refers to the build-up of socio-economic pressures on the government by forces released by market actors in order to expand economic transactions beyond state boundaries” (p. 27). In the case of this research, lateral pressure plays an important role when defining what part of responsibility in the cessation of development of solar energy in Andalusia must be attributed to the state and, more

importantly, on the effects of the lack of development in the decision making of the previously built network of companies and institutional actors around the solar energy industry in

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Lateral pressure is understood here as part of the resource scarcity model, that will be used to identify the need and motivation for energy transition to renewable energy Spain. As a result of scarcity, there is an increased lateral pressure upon national governments to ensure a supply of energy, which is exerted by domestic forces. Therefore, “these forces provide the context for energy policy objectives of advanced and emerging economies” (ibid.). This is what drove the fast development of the solar energy sector in Spain. When a state is powerful enough, both militarily and economically, it can engage in power projection “to gain access to stocks or a territory in which stocks are located, either by strategic investment or force”, thereby alleviating the issues caused by resource scarcity. This was the case in Spain – with high dependency on energy imports, and in an expansionary economic cycle, it was a natural State strategic decision to engage in the energy transition in the earliest days.

Finally, there is an aspect of the liberal state-society complex that is present over the research: Andalusia’s solar energy directly influenced by the Spanish Central Administration rule, in the form of Royal Decrees. The main beneficiaries and/or victims being the business elite, the political elite has had the last word, and this interplay – working together of political and business elite, resonates with Cox and Nollert (2005). Not less relevant, also in the context, in a pure liberal arena, the comparative advantage as defined by David Riccardo is what it is to be thought of after reading my research – the importance energy has for any State (and

subsequently region) in ensuring the long term in the global international politics arena, and this research attempts to help understand the damage or consequences of periods of volatility in the determination of State powers.

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18 1.7. Hypotheses and operationalization

Hypotheses

1. The development of solar energy industry in Andalusia before 2008 and the absence of development that followed until 2016 was due to a large extent to the legislative actions taken by the Spanish Government related to incentivizing renewable energy to foster energy transition

2. The Spanish crisis forced the Government to amend its energy transition fostering plans, impacting directly solar energy development in Andalusia and letting vanish the comparative advantage Spain and the EU were building

3. Because of the pioneering role that Andalusia played before 2008 in the solar energy industry, extensive know-how was built, part of which (through companies and other institutions) is still active

4. Because of the lack of the 8 years of solar energy development freeze until 2016, the previously built know-how ended up moving abroad and benefitting other states solar energy development

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19 1.8. Research Method, Data and Actors

For the research method, I will mainly use qualitative methods that will be mostly backed by quantitative evidence. My research will include peer-reviewed articles, available published literature on the topic of the development solar energy in Spain (focused on Andalusia) in the recent decades, as well as official policy papers dealing with legislation of solar energy in Andalusia. The latter will consist mainly on the review of the Royal Decrees by the Spanish Governments between (and prior to) 2006 and 2016, with particular attention to the legislative novelties introduced by the socialist Government led by Zapatero in 2008. Additionally, there will be a strong component of data, necessary to back-up the hypothesis of the years of inaction that followed 2008. These sets of data will come but publicly available reports (Spanish

Photovoltaic Association, Government of Andalusia, company reports like Abengoa’s, and international sources like the IEA or Eurostat).

On top of the data and available scholar work on the topic, I intend to conduct a series interviews with:

o Spain’s Ministry of Industry

o Abengoa (current and former employees)

o Prestigious lawyers working on energy that play an advisory role towards the central Spanish government

Actors in Relation with the Theory, Research Method, and Data

o Comisión Nacional de los Mercados y la Competencia – body that regulates the energy sector (https://www.cnmc.es/en)

o Ministerio de Energía, Gobierno de España (http://www.minetad.gob.es/en-US/Paginas/index.aspx)

o Plataforma Solar de Almería - depending on CIEMAT, most important public R&D institution on solar energy (http://www.psa.es/en/index.php)

o UNEF – Spanish Photovoltaic Union (https://unef.es/) o Abengoa (http://www.abengoa.es/web/en/index3.html)

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20 1.9. Division of Chapters

I. Research design

II. The rise of solar energy ambitions in Andalusia, Spain, between 2000 and 2012

III. Spain in crisis, 2008 as the starting point

IV. The resulting downturn in the development of solar energy in Andalusia

V. The aftermath of a lost opportunity

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Chapter 2

The rise of solar energy ambitions in Andalusia, Spain (2000 – 2012)

2.1 Introduction

To provide an answer to the question ‘What was the state of the solar energy industry in Andalusia,

Spain, in 2012 and its evolution since 2000?’, this chapter will set out how the expansion of the solar

energy industry in Spain, and particularly in its southern region of Andalusia, took place between 2000 and 2012. The purpose of this chapter is to verify the theoretical underpinning of this thesis, mainly by showing how the state vs. society complex took form during these years in regard to solar energy development decision making, and how the proliferation of private initiatives in the solar energy space was a direct consequence of policy changes adopted by the Spanish Central Government (SCG).

This chapter will first provide a description of the regulatory decisions adopted by the SCG to foster the development of renewable energies in Spain, of which solar energy. These decisions are taken by the Spanish executive power and usually take, when there is a sense of urgency for the decision to be passed, the form of Royal Decree-Laws (RD). The RDs are in essence legal rules that have the force of law in the Spanish legal system. The adjective ‘Royal’ is given because it is the Chief of State (in Spain, a parliamentary monarchy regime, that is the King) who is in charge of sanctioning and ordering the publication of the rules. In the context of the legislation of renewable energy related measures, the RDs are common, though the figure of the RDs is to be used only when there is urgency to implement certain measures and because the RD is created following an extraordinary necessity. The Spanish Constitution of 1978, in its Article 86.1, states that “in case of extraordinary and urgent need, the Government may issue temporary legislative provisions which shall take the form of decree-laws(…)”. As we’ll see through this thesis, the RDs are the common regulatory instance when it comes to legislate on renewable energies.

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Secondly, this chapter will deep dive into the expansion of solar energy in Andalusia during the first decade of the XXIst_{century. Directly influenced by the RDs that were adopted throughout} that period, in the context of an expansionary economic cycle in Spain, the installed capacity of solar power grew exponentially in the period 2000-2008, and so did the number of companies that invested in the sector and in the region, the related employment, etc. Providing an overview of ‘the rise’ of the solar energy industry in Andalusia, Spain, will serve as a solid base for the rest of the thesis, as in the subsequent objective is to analyse ‘the fall’ of the solar energy ambitions in the region following the Spanish crisis and the aftermath in what had been achieved during the years of ‘rise’.

2.2 Renewable (Solar) Energy Development Policies and legislative framework evolution (2000-2008)

In Europe, the largest solar energy resources are found in Spain (1,200 – 1,800 kWh m-2 year-1₎ (Díez-Mediavilla, Alonso-Tristán, Rodríguez-Amigo, García-Calderón, 2010). Additionally, global solar irradiation on a horizontal plane is estimated at between 1.48 and 3.56kW/m2 (Dinçer, 2013). Spain´s GDP growth between 2000 and 2008 was of 7.0% (CAGR, excluding Andalusia), in Andalusia it was of 7.3% CAGR (INE). Because of this strong expansionary cycle, in that period Spain didn’t reduce its emissions but, on the contrary, it tripled them. In order to palliate that, and because of the large dependency on imports, the GoS approved several plans to foster the development of renewable energies (Gámez, M. & Bosch, R. 2006). These had positive outcomes, which became tangible by the end of the decade. According to the project ‘Renovable Made in Spain’ (2010), Spain was in that year the leading country in Europe and the second-leading country in the world in solar thermoelectric installed capacity, and the second-second-leading country in Europe and in the rest of the world in photovoltaic energy (Ruiz Romero, Colmenar Santos & Castro Gil, 2011).

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There is a direct correlation between the rapid growth of solar energy in Germany and Spain and the feed-in tariff systems in place during the period of study. Those guaranteed attractive returns along with the regulatory requirement demanding 100% of grid access. (Timilsina,

Kurdgelashvili, Narbel, 2011). Therefore, understanding the policy evolution and the decisions taken by the GoS through the means of RDs regarding renewable energies is a necessary

condition to observe the expansion of solar energy industry in Andalusia and in the rest of Spain during the first decade of the century.

As a starting point, it is important to recall that following the protocol of Kyoto that became effective in 1997, it was established that the signing countries (that accounted for 55% of world´s CO2 emissions) would need to reduce their emissions by 5% taking the year 1990 as a base. In the case of Spain, despite the country being allowed to grow its emissions by 15% given the expansionary economic cycle it was immersed into, these grew by 27.9%, an excess of 193 million tonnes of CO2. In order to compensate for the excess of emissions, Spain had to buy rights of emission to other countries. The cost was of 770 million euros, in the four years preceding 2012, which placed Spain as the second largest buyer of emission rights after Japan. The protocol of Kyoto was not the only initiative aiming at reducing CO2 emissions (and hence forcing governments to foster in every possible way the development of their renewable energy sectors). The European Union, through several directives, aligned itself with the ambitious plans to counter climate change. The EU, which began its existence as a ‘Energy Union’ around coal didn´t pay much attention to the need for reducing CO2 emissions until the decade of 1990s, when, in 1996, it issued the Green Paper on Renewable Energy. This would set the first objective of renewable energy production, demanding the EU countries to source at least 12% of their energy consumption through renewable sources by 2010 (Directive 96/92/CE). With the directive in mind, the GoS issued a New Energy Plan 2005-2010 with renewed and ever more ambitious target. This was in 2005, at the peak of the expansionary cycle that witnessed the southern European country in the beginning of the centuries.

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However, the subsidies were already in place before, starting in 1998 with the RD 2818/1990 that fixed a premium over market price for electric energy. Additionally, in 2004, two days before the elections to the GoS, the RD 436/2004 introduced the possibility to sell renewable energy at a market price + premium (Sevilla Jiménez, Golf Laville & Driha, 2013). These RDs had a strong attraction effect to Spain, and the country developed in those years as a wind and solar energy hub – creation of companies and employment, R&D centres, etc. In R&D, Spain, through the Ministry of Energy and Industry (MEI), invested heavily, approximately six times more than the average of Spanish companies (Ruiz Romero, Colmenar Santos & Castro Gil, 2011) The creation of companies in those years led to the existence by 2010 of 1,000 renewable energy companies, responsible for 89,000 direct jobs and 99,000 indirect jobs (ISTAS, 2011). However, those regulatory changes were falling short to accomplish the EU directive objectives for 2010. With a new government in place, led by the Spanish socialist party PSOE under President Rodríguez Zapatero, in 2007 the GoS approved the RD 661/2007. This RD didn´t change the structure of the feed-in tariff system that was of application by then. Furthermore, it elevated the economic incentives for investing in Spain in renewable energies. Specially in solar energy, this increase in subsidies made very attractive to the promoters of PV installations to invest in Spain. Indeed, the premium paid on the tariff reached 0,440381€/kWh, in other words 575% of the average tariff of reference in that year, 2007. The result of such generous subsidies was that one year later, in May 2008, Spain reached 1,100Mw of installed capacity, and in October it reached 2,200Mw of installed capacity. To help the reader size the impact this RD had on the development of solar energy in Spain, the PER (Renewable Energy Plan) 2005-2010 by the MEI, was hoping to reach an installed PV capacity of 400Mw only in 2010.

As a consequence of the successive RDs aiming at fostering both the compliance with Kyoto and EU targets and the development of a competitive renewable energy industry, Spain experienced a boom in the installation of PV installations – specially after the aforementioned RD 661/2007. Behind these PV installations, a myriad of national and international investors

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(e.g. Private Equities, Hedge Funds) that saw this PV installations as financial investment products, since there was a guaranteed return that would offset largely most of their business as

usual investment products (Ruiz Romero, Colmenar Santos & Castro Gil, 2011).

2.3 Expansion of the solar energy industry in Andalusia (2000-2012)

“Andalusia has a suitable climate for the installation of photovoltaic power plants because of its high levels of solar irradiation and its moderate temperatures…there are sufficient resources available to replace fossil fuel thermal power installations with solar power plants that use renewable energies for the production of electricity.” (Carrión, Espín, Aznar, Ramos, 2007) For reference, in order for the reader to have a better sense of what the potential of Andalusia´s sun for energy production is, it is interesting to observe that scientific studies made in Turkey and Jordan found average solar radiation values of 5-7kWh/m2_{per day, values that are similar to} those obtained in Andalusia (Ramos, Hontoria, Moreno, Zamorano, 2004).

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26 Map 4: Average radiation on horizontal surface in Andalusia (2007)

- Source: Carrión, Espín, Aznar, Ramos (2007) –

Andalusia is the southern region of Spain, and the entry door to Africa from the European continent. Because of its geographic location, it has ideal climate conditions for the development of solar energy. As a result, under the agreements included in the protocol of Kyoto mentioned in the preceding section and following the first EU Green Paper on renewable energies, the Spanish region of Andalusia quickly became a hotspot for the expansion of solar energy through the installation of PV and solar thermal plants. Already in 2004, Andalusia ranked as the Spanish region showing the largest number of solar thermal plants, accounting, in December 2004, to a total surface coverage of 130,552m2_{(Ramos, Hontoria, Moreno, Zamorano, 2004). This fast} development of solar energy infrastructure programs in the period 2000-2010 in Andalusia and to a minor extent in other regions of Spain resulted in Spain leading the solar energy industry in Europe. Spain was in the 2000s the country to look at when it came to the development of solar energy and its related innovation.

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27 Table 1: Amount of large-scale PV power plants put into service annually in the period

from 1995 to 2008, sorted by country

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28 Map 5: Large-Scale Power Plants – Installed Power Capacity in European Countries

- Source: RWTH, University of Aachen, 2008 –

The early stage development of solar energy in Andalusia can only be understood through the joint effort of the public administration, on one side, and through private investment flows originating, both in Spain and abroad, of both national and international solar energy related companies.

Throughout the thesis, the rise and fall of solar energy ambitions in Andalusia is going to be illustrated through the example of listed company Abengoa – an alternative energy and environmental services group (Mallet, 2010). Abengoa is the paradigm of the development of solar energy in Spain, and particularly in Andalusia. Based in Sevilla, Abengoa was the absolute leader in the construction of PV and thermosolar plants in the world in the first decade of the

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twentieth century. With a sound profit and loss account, in those years Abengoa went from a company with revenues €748M in 2000 to €1,822M in 2011 (Abengoa Annual Reports). In a similar time span, profits multiplied by ten. The Financial Times, and all the specialized financial and energy related publications would unequivocally praise Abengoa’s story of success. It was the fairy-tale of an Andalusian company that was installing top of the art thermosolar

installations all around the globe. As the FT put it: “the company is a member of the Ibex 35 stock exchange index of big Spanish companies and the owner of Telvent, the only Spanish company listed on Nasdaq” (Mallet, 2010). Interestingly enough, Abengoa was praised by political leaders, and its solar energy expertise was demanded as part of the transformation that the US was enduring in the recovery years after the 2008’s financial crisis. In February 2009, US Treasury Secretary Timothy Geithner published President Obama’s economic recovery plan. Besides the tailored financing solutions to bail out the weakened financial sector, the economic recovery plan accounted for a total of $787billion aiming at increasing the spend in

infrastructure, therefore fostering employment and lowering fiscal expenses by the American citizens. Part of that plan included the issue of loans for companies seeking to develop ‘new wave’ industries, such as the renewable energy. In July 3rd_{, 2010, in his weekly video address} President Obama announced the offer of a conditional commitment to Abengoa Solar Inc. for a $1.45 billion loan guarantee to finance the construction and start-up of a concentrating solar power generating facility. The Solana, Arizona plant was to add 250 megawatts (MW) of capacity to the electrical grid using parabolic trough solar collectors and an innovative six-hour thermal energy storage system, which was a pioneer in the US. President Obama commented on the loan that he had agreed upon with Abengoa: "After years of watching companies build things and create jobs overseas, it's good news that we've attracted a company to our shores to build a plant and create jobs right here in America". On the same page, his Energy Secretary Chu explained that “supporting this type of innovative renewable energy project is part of our commitment to creating a clean energy future while significantly reducing greenhouse

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gases…this project will create jobs while helping to position the United States as a global leader in the development and use of clean energy" (Department of Energy of the United States of America, 2010). These were the honeymoon times for Spanish Solar Energy Industry, and particularly for the region from where Abengoa directed its operations and investments in both national and foreign soil – Andalusia. On its side, the company expressed similar enthusiasm in being chosen by Obama’s administration to be at the forefront of the US quest to maintain its hegemony in light of the renewable energy transition. In December 2010, Abengoa’s press release noted: “This loan will be used to build Solana, the largest thermosolar plant in the world. Total investment will near 2,000 million dollars” (abengoasolar.com, 2010). If there is a company that, by size, international exposure and presence in headlines, is of use to understand the rise and fall of solar energy ambitions in Andalusia, that is Abengoa. In this part of the thesis we are looking at the expansion of the industry. In the fourth and fifth chapter we’ll assess the

downturn of the company’s results, that have led Abengoa to be today, May 2018, fighting for its survival among restructuring plans that prove unable to surmount the debts that were engaged by the company in the years of growth…

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31 Table 2: Revenues of Abengoa by geographic origin (2000-2015)

- Source: Own realization using Abengoa’s publicly available Annual Reports –

From a public support scheme standpoint, the development of solar energy in Andalusia in the early 2000s was fostered by the existence of the Solar Platform of Almeria (PSA), a division of the Centre for Energy, Sustainability and Technology Research (CIEMAT). Since its inception, that dates back to the 1980s, the PSA has been the largest research and development centre in Europe for solar energy, particularly focused on research around high-concentration solar energy

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Abengoa – Sales in K€

Spain Others US

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technologies (Ramos, Hontoria, Moreno, Zamorano, 2004). The PSA centre falls under CIEMAT, which on turn belongs to the Ministry of Energy & Industry of Spain.

Additionally, the Energy Sustainability Plan of Andalusia 2007-2013 (PASENER), established that the industrial and technological development of Andalusia had to be based on energetic self-sufficiency. This plan, launched in 2007 by the Junta de Andalucía (the regional government), included a previous study that analysed the development of the presence (production and consumption) of renewable energy in the region from 2005-2009. We observe that in 2005 only 6.4% of Andalusian towns and cities had installed any renewable energy production capacity (wind, PV, thermosolar). In 2009, the share had increased to 33%. In those 4 years, the PV installed capacity increased by 23 times, and the land devoted to PV installations increased from 18ha in 2005 to 1,678ha in 2009. Similar growth was seen in thermosolar installations, and the two provinces accounting for most of these installations were Sevilla (the region´s capital) and Almería (home to the PSA, the leading R&D centre around solar energy) (Junta de Andalucía, 2012).

This expansion of installed PV and thermosolar capacity had a remarkable influence in the number of companies that were formed around the industry and subsequently in the associated employment that is needed for the installation and maintenance on one side, and for the design and engineering on the other side. According to IDAE (the Institute for Diversification and Saving of Energy under the Spanish Ministry of Energy), in 2010 there were 310 wind energy companies and 568 companies working in either PV or thermosolar energy. Andalusia ranked 3rd among Spanish regions in number of companies, with 69 of them, after Madrid (154) and Catalonia (132). This datapoint is particularly relevant if we consider that the economic and business engines of Spain are Madrid and Barcelona, and it is natural for entrepreneurs to base register their companies in these cities even if operations take place mainly in other regions. Therefore, Andalusia not only developed as an excellent source of solar energy production, but

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also as a powerful hotspot to base solar energy companies. 120,722 people worked in renewable energy in 2008 in Spain, a sector that, according to Deloitte (2011), is more labour intensive than conventional sources’ sectors and, on average, Spanish workers in the renewable industry

showed a higher productivity (31%) than the average of other sectors of activity. In terms of employment directly related to PV and thermosolar, Andalusia´s Energy Agency – an institution under the supervision of the Junta de Andalucía – placed, in 2013, in 1,400 the number of companies operating in Andalusia, totalling an employment figure of 44,000 people and a mobilization of capital (investments in the region´s solar energy industry) of €11billion (Agencia Andaluza de la Energía, 2013).

When differentiating between sources of solar energy, it is to be noted that Andalusia was the world leading region in thermosolar, of which Abengoa was the company that fostered its development both in Spain and abroad, with the support of public institutions as illustrated by the PSA of Almería. By 2011, Andalusia’s region had installed 698MW of thermosolar power, representing 61% of the nation’s total (Agencia Andaluza de la Energía, 2013). Andalusia has for a long time led innovation and installation of thermosolar plants. Still in 2016, Spain topped the ranking in cumulative installed capacity with 2.3GW, followed by the US with 1.7GW. The investments that were responsible for this Spanish comparative advantage in a key source of energy within the energy transition has to be tracked back to the second half of the first decade of the century, where the coordination of actors – generous legislation and R&D support from the Spanish State together with the determination of private actors like Abengoa – translated into the installation of large thermosolar plants in the Spanish territory. Among the largest 10

thermosolar plants that were alive in 2016, the US placed 5 and Spain placed 4, and all of the thermosolar plants in Spain and two in the US (Solana and Mojave), had been installed and where operating under the control of Abengoa (Roca, 2016).

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Andalusia was the pioneering region in Europe in renewable energy. It is the first region in Europe where large thermosolar commercial projects where undertaken, and it is the only region today where tower concentration energy plants have been built. It is the plant of Abengoa Solar in Sanlúcar la Mayor, province of Sevilla (Sur, 2009). In total, in 2009, both using PV and thermosolar, Andalusia could provide electricity through these renewable sources to 788,200 people, or 9% of the inhabitants of the region back then (Instituto Nacional de Estadística, 2009)

Table 3: Conc. Solar Thermal Power Global Capacity by Country/Region (2005-2015)

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35 2.4 Conclusion

In this chapter we have reviewed what were the main drivers of the rise of Andalusia’s and Spain’s solar energy industry in the first decade of the century. There are three main causes.

Firstly, a generous legislative framework resulting of the publication of continuous Royal Decrees that, at each occasion, lowered the profitability bar for both national and international investors, attracting large amount of capitals into Spain and Andalusia aimed at developing its renewable energy sector. This business favourable legislative environment had its peak in 2007 with the publication of the RD 661/2007, that turned any investment into wind, PV, or

thermosolar plants, in a very lucrative one (Ruiz Romero, Colmenar Santos & Castro Gil, 2011).

Secondly, the regulatory incentives were accompanied by ambitious target of renewable energy production and consumption by both the Spanish Government and of the Junta de Andalucía. Moreover, the efforts of the administrations included technical and economic support to private investments. This is illustrated in the role that during those years the PSA in Almería played as a world leading PV and thermosolar R&D hub. The main beneficiaries of these were Andalusian companies, and it is not surprise that more than hundred of them came into existence in those years.

Thirdly, the boom of solar energy in Andalusia cannot be understood without the most relevant private actor, Abengoa. Its ambitious plans not only led the company to the construction and operationalization of the most innovative PV and thermosolar plants in those years, but also led the group to play a pivotal role in the development of PV and thermosolar energy abroad, specially, as we´ve seen, in the United States, where the company even got to be praised by President Obama.

However, the years following 2010 were characterized by a paralysis in the investments in PV and thermosolar in Spain and particularly in Andalusia, which explains why today, 8 years later,

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the installed capacity resembles that of 2010. In order to understand what led to this freezing of solar ambitions, we need to understand what led Spain to cut down on energy subsidies and its solar companies to either disappear or internationalize to survive. The answer is to be found in the global financial crisis that was unleashed in the summer of 2007, of devastating effects for the Spanish economy, and hence changing the country´s priorities radically.

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Chapter 3

Spain in crisis, 2008 as the starting point

3.1 Introduction

It is unclear how many more years would have Spain been unaffected by its structural problems – i.e. current account deficit and resulting debt combined with real-estate over dependency and bubble – had the world not been shaken by an unprecedented financial crisis in 2008. What is certain is that the financial crisis that started in September 2008 with the collapse of Lehman Brothers was the first of an array of events that would take Spain to unrecorded levels of unemployment and debt of which it still hasn’t recovered 10 years later.

Table 4: Unemployment Rate Evolution in Spain and Andalusia (2002-2016)

- Source: Own realization based on data from Instituto Nacional de Estadística (INE) –

0% 5% 10% 15% 20% 25% 30% 35% 40% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

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This turmoil took place simultaneously with the expansion of the renewable energy industry in Spain, which, as detailed before, was a result of coordinated efforts between public and private initiative. From a public expenditure standpoint, in the period between 1998 and 2011,

renewable energies in Spain received (through the feed-in tariff mechanism) a total of €35bn in regulated payments, that is, tax money transferred by the State (Fabra & Fabra, 2013). As we´ll analyse in the subsequent chapters, the crisis in Spain, and the unprecedented level of debt to GDP ratio and unemployment the country got immersed in, forced its government to take austerity-oriented measures and to re-allocate public expenditure priorities. As a result, the solar energy sector experienced regulatory changes that would in turn be the main cause of the downturn in its expansion, both in Spain and in the Region of Andalusia. It is important however to understand what led to these decisions, and for that we must assess what were the main causes of the Spanish crisis, a crisis that in the eyes of many is still ongoing in 2018 (unemployment levels are still far from the pre-crisis years). This will help us understand what the implications for the political economy of energy were; what was the rationale behind the decisions that led the Spanish Government to cease subsidizing the expansion of renewable energies to counter other urging necessities (unemployment subsidies, etc) at the cost of giving up a comparative advantage that was gaining track worldwide.

3.2 Brief Explanation of the 2008 Financial Crisis (US and Europe)

We shall begin by briefly summarizing the causes that led to the global financial crisis. Firstly, as The Economist described in 2013, it all started “with the folly of the financiers”. This refers mainly to the loans that were granted to “subprime” borrowers in the US with poor credit histories and were later “passed on to financial engineers at the big banks, who turned them into supposedly low-risk securities by putting large numbers of them together in pools” (The

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different US cities or states were not correlated, an assumption that proved wrong when in 2006 the US started witnessing a nationwide house-price slump. With low interest rates and low volatility, investors and banks were encouraged to allocate capital to risky assets, a strategy that revealed its dangerous potential once the US housing market turned. A chain reaction started, and when Lehman Brothers went bankrupt without any bail-out (later that would become the norm in similar cases), the entire system collapsed at the evidence of twisted balance sheets and of an over exposure to risky assets.

In Europe, there were internal imbalances that worsened the consequences of the financial collapse. Southern Europe economies, of which Spain, showed large current-account deficits in the first decade of the euro. Such imbalances were narrowed by credit flows from “the euro-zone to the overheated housing markets of countries like Spain and Ireland” (The Economist, 2013). Precisely, we could place the beginning of the European crisis when financial markets lost

confidence in the creditworthiness of Greece and other peripheric countries (of which Spain). As a result, interest rates on government bonds increased exponentially, and this forced several governments to seek bailouts from the international community – the EU and the IMF. The main propagator of the crisis among European countries and households was the fear of a chain reaction in states’ bankruptcies. The general impression of the lending economies (e.g. Germany) was that European economies in fragile situation, or at risk of bankruptcy and need for a bail-out, where in such place because of its loose fiscal policies, and an over-spending that in their eyes admitted no justification. Hence, the premise in the years between 2008 and 2014 was that of the need for austerity (Yifu Lin and Treichel, 2012).

To face the crisis, the EU actioned a financial stability plan of €750bn in the form of debt (loans) and equity, of which half was provided by the IMF. Simultaneously, the European Central Bank (ECB) purchased public and private debt from the states showing stronger imbalances. As counterpart, the countries at risk were required to undertake fiscal and budgetary reforms aiming

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at both cutting down public expenditures and getting back to economic growth in the shortest lead time possible. The eurozone crisis was one of public debt. (Trabelsi, 2012). Both the PIIGS (an acronym that englobed the eurozone countries at risk – Portugal, Ireland, Italy, Greece, Spain), and Germany and France (the two largest eurozone economies) exceeded the budgetary limit of 3% in the period 2009-2010.

Table 5: General Government Deficit/Surplus (% of GDP)

Country 2008 2009 2010 Greece -9.8% -15.8% -10.6% Ireland -7.3% -14.2% -31.3% Portugal -3.6% -10.1% -9.8% Spain -4.5% -11.2% -9.3% Italy -2.7% -5.4% -4.6% France -3.3% -7.5% -7.1% Germany -0.1% -3.2% -4.3% Eurozone -2.1% -6.4% -6.3%

- Source: Own realization based on data from Eurostat –

In order to alleviate the government deficits, and as a counterpart to the bailout programmes that were offered by the ECB to the EU peripheral countries, these were required to adopt severe measures of austerity that in turn induced deep recessions (Lapavitsas et al., 2012). Therefore, the PIIGS, that were already indebted as a result of a weakening competitiveness to the eurozone core countries, found themselves in the necessity to adopt further budgetary restrictive measures that had strong negative implications in their employment and debt levels. The years of recession started, and hence the years were the urgency for austerity left little room

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to medium to long term competitivity projects (of which the determined support the Spanish State had offered until then to renewable energies).

3.3 The Crisis in Spain – main causes

Spain joined the European Union in 1986 together with Portugal, and, on January 1st_{, 2002,} Spain was among the 12 European states that adopted the euro (interestingly the name ‘euro’ had been adopted officially in 1995 in Madrid). There is general consensus of the benefits that joining the EU and the single currency have had for Spain. Indeed, before the 2008 crisis started, Spain was regarded by many as an economic miracle given the growth it had witnessed since the decade of the nineties started.

Table 6: GDP per Capita in US$ (1990-2007)

- Source: OECD data –

El País, the prestigious and most distributed newspaper in Spain, headlined in March 2007: “The Spanish Economic Miracle – Spain is now the model of reference for the countries that have joined the EU since 2004” (Missé, 2007). The article describes some of the features of the Spanish Miracle:

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• How Spain had a GDP per capita that equalled 71% of the EU-15 in 1985. In 2004, this had raised to 90%

• How Spain, since its adhesion to the EU has been the country to receive more funds from the European Union (€150bn that were invested mainly in infrastructures and explain to a large extent the ‘miracle’)

• How employment was growing at impressive rates. In 1995, the article describes, Spain had the lowest occupation rate in Europe (47% in the ages between 15 and 64). In 2005 the rate went up to 63.3%, at par with the eurozone and above countries like France, Belgium and Italy. In 2006, the article concludes, Spain created 40% of all the new employment in the eurozone

The Spanish Economic Miracle extended also to companies, which expanded aggressively overseas. In 2006, a total of €140 billion was invested by Spanish companies in acquisitions of domestic and foreign companies, placing Spain 3rd_{in the EU, only behind the UK and France.} €80 billion went to acquire companies abroad, compared to €65 billion spent by German

companies (Royo, 2014). These were the times when Iberdrola, an electricity supplier, purchased Scottish Power when Telefonica purchased British O2 or when Santander bank purchased Abbey National Bank. And, this optimism in the business and economic arenas also reached the Spanish people. It became on those years the most popular country to work in the European Union. Between 2000 and 2007, nearly 5 million immigrants settled in Spain, making it the biggest recipient of immigrants in the EU (Royo, 2014).

However, the economic miracle ended soon. In March 2018, a group of 12 Spanish economists published a book (Ed. Routledge Frontiers of Political Economy) that assessed and reviewed the causes of the Spanish crisis and the ‘triangle’ that, according to the authors, made it possible – the government sector, the building sector, and financial capital). The title of the book illustrates well enough the journey that Spain undertook since the nineties until our days: “The Political

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Economy of Contemporary Spain: From Miracle to Mirage” (Buendía et al, 2018) We will now introduce the main causes of the Spanish crisis and its effects on the country’s economy and political economy decisions that were taken to palliate the effects.

One of the first explanations of the Spanish crisis is to be found in the current account deficit. Spain´s current account worsened since the mid-1990s, but it was only when the euro was adopted in 2002 that the deficit gained in intensity. This had to do with an inability to be competitive enough in opposition to northern European countries, with higher levels of productivity and an economy that was more reliant on industry and exports. The case of Spain was similar to other southern European countries, that also saw their current account deficits on the rise since the euro substituted the national currencies. Meanwhile, at the expense of these peripherical countries, Germany registered regular surpluses. These surpluses from capital-exporting countries like Germany were mainly invested abroad. The excess savings were intermediated through the global banking system and other regulated intermediaries (insurance companies, pension funds, etc.) and, because of the apparent risk profile, were invested in peripherical European countries like Spain. The effect on Spain was an expansion of domestic demand that contributed to make Spain less competitive (Quaglia & Royo, 2015)

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44 Table 7: Current Account Balance (% of GDP)

- Source: IMF data –

The natural alternative to current account deficits is usually to offset this by foreign direct investments (FDI). However, in the case of Spain, these remained somewhat weak, and the current account deficit had to be financed through bank loans and portfolio flows from abroad (Lapavitsas et Al, 2012).

The current account deficit problem is one side of the triangle behind the Spanish crisis. Interlinked with this, the other two – the banking system and the real estate bubble. At first, when Lehman Brothers went bankrupt in October 2008, Spanish banks did not struggle, there was no visible contagion effect – they did not experience major losses nor required state funded recapitalization (Quaglia & Royo, 2015). However, this quickly changed. Spain had at the time a dual banking system of commercial banks and public regional savings banks. The latter were politically controlled, managed by politicians rather than by professional bankers, and were fundamental to the real estate bubble that was perhaps the main cause for the Spanish economic crisis (Cuñat & Garicano, 2009). These savings bank, they no longer exist and have been

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absorbed by commercial banks when not gone bankrupt, experienced a surprising growth in the years prior to the crisis, their market share climbing from 20% in the 1980s to 40% in 2010. Their main focus was to lend to property developers as well as financing mortgages through credit to consumers. They had large capital inflows – coming from the excess savings surplus of eurozone core countries – and so they were generous on the lending side. Like in the US, the Spanish cajas (public savings banks) would lend large sums to consumers with little credit reliance. The party was over when the economic recession hit the country following the global banking crisis. Indeed, the cajas were “exposed to the collapse of the construction sector and the payment difficulties of mortgage holders” (Quaglia & Royo, 2015).

It is in the construction sector, and in the real estate bubble that we find the key rationale for the crisis and its consequences – high debt, record high unemployment, and subsequent austerity measures at the expense of medium and long term national political economy like the renewable energy support scheme. Spanish miracle was based on low-intensity economic sectors, like services and construction. In 2006, 75% of the jobs that were created were coming from construction and real estate or tourism. It proved unsustainable. Land prices increased 500 per cent between 1997 and 2007, in a context were more housing was being built in Spain than in Germany, Italy and France altogether. The economy was too reliant on construction and

housing, which by 2007 accounted for 18.5% of GDP, in opposition to 8.7% in Germany in the same year (Münchau, 2007). The financial crisis finally burst the real estate bubble in Spain. By 2011, land prices had fallen about 30% from the 2007 peak (Royo, 2014). All other indicators plummeted in the same direction. In 2013, the number of dwellings started was 96% lower than in 2006 (Fernández & Collado, 2017).

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46 Table 8: Ratio Housing Price/Household Income – comparison between Spain, UK and

US

- Source: Bank of Spain, Halifax, US Census Bureau (García Montalvo, 2009) –

The social consequences of the crisis were devastating for Spain, and all indicators turned. In a matter of years Spain changed from an immigrants’ recipient country to a nation of emigrants. It became a necessity with an unemployment rate that reached 27% in 2013, resulting in 6.3 million people unemployed. Thousands of companies went bankrupt, and local and regional

governments ran out of money to provide the most basic services. Austerity measures were not seen as an option but as an obligation. However, it is interesting to analyse the political economy decisions that were taken to palliate the effects of the crisis. We´ll now look at the government´s reaction during the time of the crisis (2007-2014).

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47 3.4 The Spanish Government´s response

When the crisis took off in Spain, in 2007, the government was led by president Zapatero, of Spanish socialist party (PSOE). He would be re-elected in March 2008. Only then, after the elections, the government would admit Spain was diving into recession. The political strategy the government put in place before then was one of denial that the global financial crisis would reach Spain. Though there were clear symptoms of the real-estate bubble burst that was starting (an article of the FT referenced in the previous section dated of summer 2007), the Spanish government intentionally ignored the alarms to secure its re-election. In the Summer 2007, Spanish former Finance Minister Pedro Solbes predicted that “the crisis would have a relatively small effect” on the Spanish economy (Royo, 2014).

It was only in July 2008 when President Zapatero finally acknowledged in public that Spain was facing an economic crisis. Since that moment, his government, under pressure from a sky-rocketing risk premium and in the need to envisage reforms to try to cease the economic bleeding the country was going through, finally undertook reforms. It was the beginning of the times of austerity in peripherical European countries.

The first series of measures were aiming at the reduction of deficit, at a record high in 2011, when it reached 11.4% of GDP (INE, 2012). The actions the socialist government took were harsh and drastically opposed to what the party under government stood for and had promised in the 2008 campaign. These included freezing pensions in 2011, lowering for the first time ever the salaries of civil servants (5% decrease) and the suppression of subsidies to families having new-born babies. In January 2010, the Finance Minister back then, Mrs Elena Salgado, announced an austerity plan of €50bn, intended at lowering the deficit to 3% in 2013. This austerity package included the suppression of many committed investments in renewable

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the Andalusian, to remain at the forefront of the world´s energy transition. Taxes were also raised, for the higher incomes, but also for all consumers. VAT was raised from 16% to 18%.

In November 2011, there were new elections to the Spanish Parliament, and the socialist party, in power until then, had its worst ever results. The Spanish people didn´t forgive the months the socialist government had spent denying the crisis, nor did the left electorate forgive the socialist party for having taken the austerity measures referred above. A new government was formed, and the conservative party PP (Partido Popular) won the elections with 186 seats (out of 350). The Spanish people gave the right-wing party the responsibility of further fixing the country and of finding the way back to growth. Newly elected president Rajoy quickly adopted new measures not only to palliate the crisis, but also to avoid a bail-out in the likes of the Greek and

Portuguese. The first decision his government took was a labour reform aiming at lowering the cost of lay-offs for employers. This labour reform was seen positively by the EU, though it acknowledged it would “provoke an increase in unemployment in the short term” (El País, 2012). Along this labour reform, Rajoy executive presented a new increase of income tax, that pushed to 56% the tax bracket for the higher incomes. Additionally, Mr. Rajoy took a

controversial decision when announcing a fiscal amnesty for Spanish fortunes in tax heavens. Among general strikes, the government kept on with its austerity measures, at the expense of public services. As per the weakened Spanish banking system, it announced the nationalization of Bankia, the largest savings bank and highly exposed to the real estate bubble. This

nationalization was followed by a demand of capital injection to the Spanish banking system to the IMF of €100bn.

Rajoy´s government did the work it had aimed for, and, amidst an expansionary cycle, Spain went back to growth and unemployment began to slowly decline. In 2016, Rajoy, though without a majority of seats in the Parliament, was re-elected as the Spanish president. Spain, as a result of austerity measures became more and more competitive. It was now a net exporter, with current account surplus, and its economy not dependent anymore on the housing sector.

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49 Table 9: Evolution of the level of activity of each sector with 2010 as a base year

- Source: World Economic Forum –

3.5 Conclusion

The downturn in the expansion of the solar energy industry’s development in Andalusia was a direct consequence of the economic cycle Spain was immersed in. Had Spain not suffered its deepest economic crisis in the century, the need for suppressing subsidies to renewable energies would not have existed, nor would have related companies seen their demand (from energy consumption to production) suffer as it did. We’ve seen that as much as €35bn is the renewable energy subsidies bill that Spain paid in the period 1998-2011 (Fabra & Fabra, 2012). We could read this figure as the cost that Spain was incurring in order to develop and secure a competitive advantage in the light of the energy transition. However, the financial resources vanished amidst the economic turmoil that began in 2008, and so did the comparative advantage that could have placed Andalusia, Spain, and therefore the EU, in a future hegemonic position (by decreasing

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EU’s energy supply security). It is therefore useful to understand how the crisis in Spain was articulated, its dynamics and depth.

Spain, in the first years of the century, was regarded by most as an economic miracle. With low unemployment and booming economic activity, Spain looked to many as a new Eldorado. In a stagnant EU, the southern country stood up as a young nation that attracted businesses, investments, and workers (Royo, 2014). Additionally, Spanish companies, with healthy balance sheets back then, were acquiring large foreign companies in different sectors. In energy, in banking, in construction, Spanish companies placed themselves among the world giants. However, when the global financial crisis started after Lehman Brothers was let bankrupt and fear spread cross markets, it soon became obvious that Spain’s miracle was more of a mirage (Buendía et Al, 2018).

Following the introduction of the single currency in 2002, Spain, like other peripherical

countries, experienced a sharp worsening of its current account deficits (Lapavitsas et al., 2012). Spain was less productive and less competitive than northern European countries. However, the large capital inflows that were entering the country helped boosting internal demand, and no one seemed to believe there were any reasons to be worried around competitiveness and current account deficits. Spain, unlike Germany, a net exporter of manufacturing goods and services, was funding its growth mainly on construction and housing, which represented as much as one fifth of its GDP in those years (Münchau, 2007). If we consider that an equal share of GDP was related to tourism, that leaves us with almost half of the wealth production of the country coming from sectors that are known for their exposure to economic cycles. The real estate bubble eventually burst, leaving hundreds of thousands unemployed and putting at risk nearly all the savings banks which, public owned, were poorly managed and highly exposed to real-estate. Spain´s government led by socialist president Zapatero took close to a year to acknowledge the gravity of the situation and put measures in place. When it did, Spanish government, under

Rise and fall of solar energy ambitions in Andalusia, Spain : (2000-2016)

Graduate School of Social Sciences