Hot Streak for Solar Power in Spain

By JUAN MONTES
MADRID -- After positioning Spain as the third-largest wind power producer after the U.S. and Germany, renewable energy companies are now racing for a foothold in the country's fast-growing "solar thermal" market.

A worker makes adjustments at an Acciona solar thermal power plant ahead of its inauguration last month in Alvarado, Spain. Companies plan to spend about $24.5 billion on a number of similar plants, spurred by government subsidies and renewable-energy goals.

Concentrating solar thermal technology, as it is known, uses mirrors to focus the sun's rays onto a central receiver, generating steam that powers electric turbines. What makes the technology unique is that the solar heat can be stored, offering a key power backup for electric grids. Conventional photovoltaic solar power has to be used on the spot.
Large power utilities are attracted by solar thermal plants, because their operation is similar to that of conventionally fueled steam power plants. Their storage capacity, using tanks of molten salt that retain heat, makes it possible to develop big plants that can generate power around the clock.
Government figures show Spain has close to 30 solar thermal plants under construction. Companies are seeking clearance for projects that would add 4,300 megawatts of capacity -- enough to cover about two-thirds of New York City's power demand on a spring day -- representing an investment of about €17 billion (about $24.5 billion).
"After wind power, solar thermal technology will be the second great renewable column of the company in the short term," said Jose Manuel Entrecanales, president of Acciona SA, a Spanish construction company that has expanded into renewable energy.
The boom comes with a number of caveats. While fuel costs are minimal, developing solar thermal energy plants is expensive -- around €4 million per megawatt, compared with about €650,000 per megawatt for a modern natural-gas power station. The technology isn't universally acclaimed: one criticism is that is that it requires a backup in the winter to keep the central receiver warm. Meanwhile, government incentives related to solar thermal power are expected to be curtailed.
Still, given Spain's sunny climate, experts say solar thermal power could be key to reaching the European Union's goal of having a fifth of all energy come from renewable sources by 2020.
"The government is very interested in solar thermal energy because it's the most suitable technology for Spain's weather," said Deputy Energy Minister Pedro Marin. "Because of its storage capacity, it's also the only manageable renewable energy source for the power grid."
Iberdrola SA unit Iberdrola Renovables and Acciona, two of the world's biggest wind-power companies, along with Abengoa SA, are among the companies with projects in the pipeline.
The ramp-up will take time. Once approved by the government, thermal plants take between one and three years to build. The Spanish government expects solar thermal generation capacity to rise from the current 183 megawatts to around 800 megawatts by the end of 2010, roughly the capacity of a small nuclear plant.
By 2020, however, Spain could have up to 8,000 megawatts of installed solar thermal power capacity, said Jose Monzonis, head of solar thermal operations at Acciona.
Acciona switched on its first Spanish solar thermal plant in July. It has three more plants under construction and a pipeline of projects with a total planned capacity around 1,200 megawatts, according to Esteban Morras, head of the company's energy division. Although the global financial crisis has forced Acciona to cut its investment in wind power operations, spending on its solar thermal business will rise this year, Mr. Morras said.
This buoyant trend could be damped by imminent regulatory changes. Analysts say a stable and generous pricing system implemented two years ago, which sets a premium for power from solar thermal technology over market prices, has been a key factor boosting expansion. But the government is expected to reduce the premiums in September and limit the amount of solar thermal power that can be brought on line each year, in order to keep expensive solar thermal power from pushing up the price of wholesale electricity and thus consumers' power bills.
"We have already suffered delays in some of our projects because of the regulatory uncertainty," said Santiago Seage, head of Abengoa's solar division. But he notes that a reasonable reduction in premiums will soften, rather than block, the local solar thermal market.
"If this happens, what will change is the pace of new installations," Acciona's Mr. Entrecanales said. "Companies will have to plan better."