The Role of Public Finance in CSP: lessons from the ups and downs of CSP policies in Spain

In a low carbon energy system, concentrated solar power is of particular interest for its ability to store solar energy as heat. This allows the delivery of power even when the sun sets, so to complement and compensate other intermittent clean sources of power. However, CSP investment costs are high compared to other options such as fossil fuel generation and mature renewable energy technologies, calling upon public support to make investments profitable and appealing to private investors. This work looks at the evolution of CSP support policies and their impact on financial returns for the industry in Spain, historically the largest market for the technology. We analyze the key features that made the development of the domestic CSP industry possible in a very short time, and measure their impact on investments’ profitability and other relevant measures (e.g. incentives for storage). We then identify and measure the impact of policy changes (aimed at containing policy costs) on investments and the implication of a higher risk aversion and lower investors’ confidence on the outlook for the industry in the country. We derive our conclusions by simulating projects’ financial profiles with a cash-flow modeling of a “representative” CSP plant whose investment costs, capital structure and production estimates equal the national averages of all the plants. We find that policy changes have now significantly increased risk aversion, so that any new eventual investment would require a support higher than before, even assuming a significant reduction in technology costs. Policy uncertainty has ultimately made the country much less attractive for CSP investors than many other developed and emerging ones. We conclude that policy uncertainty and investor confidence should be the first barriers to be tackled if Spain were to reach renewable energy (and CSP) 2020 targets.