Energy Policy and Austerity in the EU Periphery

The economic struggles of Europe – particularly Portugal, Ireland, Italy, Greece, and Spain – have called into question many of the energy policies of the EU that are designed to support and advance renewable energy development on the continent. As these countries struggle to remain fiscally solvent, they will face contradictory pressures from Brussels, which is insisting member states reduce their debt and also meet the EU’s mandate of 20% renewables by 2020. This week’s GR Energy and Climate Brief analyzes the predicaments of Europe’s hardest hit economies and the implications for the future of European energy policies.

The ongoing debt crisis pummeling the peripheral European economies of Portugal, Ireland, Italy, Greece, and Spain, has exposed the deep disconnect between EU wide policy mandates, which are expensive to meet, and the budgetary crises faced by many European countries. Given the high costs involved, subsidies that have driven renewable energy production in Europe are being challenged by both policymakers and the general public. Today’s GR Energy and Climate Brief examines recent developments in some of the most imperiled economies in Europe, starting with the country that made the most drastic policy shift of all in recent days.

Spain Aims to Cut Renewables Subsidies by €1bn/year: In a dramatic pullback, Spain's Minister of Industry and Energy announced last week that the country will "temporarily suspend all economic incentives for new installations for electricity production from renewable energy sources." The Spanish government, which had a total renewable energy subsidy bill of more than €6bn last year, said that it aims to cut €1bn a year from the cost of producing and delivering electricity to consumers, and reserves the right to make further cuts. Garten Rothkopf surveyed a range of European energy analysts who said that the decision by Spain would stop any projects in the pipeline phase. One analyst from a US-based company that does business in the Spanish renewables sector said that the new policy, combined with cuts to the FiT supports that took effect last year, could cause renewable energy production to fall by up to 50% in the coming twelve months. To replace the base load generation, Spain will turn to existing thermal, coal, and gas assets, though export cuts by Russia and the cold European winter have pushed up Spanish gas prices in recent months and could ironically put upward pressure on electricity prices.

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