Elisabeth Rosenthal has a smart piece looking into Spain's failed experiment with solar-power subsidies. What happened was that in 2007, the Spanish government announced a new policy of "feed-in tariffs" for solar power. Anyone who built, say, a solar-thermal plant or installed photovoltaic panels on their roof could sell that electricity to the grid for above-market rates. But the subsidies turned out to be way too generous, and hence way too popular—solar makers from around the world stampeded into Spain, and the country reached its 2010 target in the first year alone.
That may not sound like a problem, but it was. The tariffs are paid for by a surcharge on electricity, so consumer bills went way up. And the solar subsidies were so generous that even inefficient, badly designed plants could turn a profit. So, last year, Spain had to pull back and slash the tariffs—which, in turn, caused the solar industry to crumple, with factories shutting down all across the country. (The industry is slowly starting to recover, but it will take time.)
What's odd is that this could have all been fairly easily avoided. Germany also has feed-in tariffs for solar power, and hasn't seen the same frenzied boom and bust, mainly because the German system was better designed. In Germany, the prices offered to renewable producers aren't nearly so lavish, and the rates actually decrease each year, so as to encourage solar- and wind-makers to keep improving efficiency. (The idea is that eventually costs will tumble down and renewable power will be able to compete without public support, once it finds its footing.) And there's a cap on total installation. As a result, Germany has seen rapid growth in its solar industry without a bubble.
P.S. If you're interested, Mariah Blake had a terrific piece about feed-in tariffs in the Washington Monthly last year. Most U.S. states rely on flat standards to promote renewable energy—wherein utilities have to generate a certain percentage of their electricity from renewables by a certain date. Feed-in tariffs offer some advantages—they're especially good at promoting distributed power, since any household can install a solar panel on their roof and profit from it—but, as Spain shows, if they're not designed well they can go badly awry.
P.P.S. Craig Morris has a good post adding a couple of useful nuances and clarifications.
(Flickr photo credit: Darrell Godliman)