“It was like the dotcom boom all over again. Everybody wanted to be in on the action. Everyone you met was doing something. It was all people talked about.”

This is how one energy executive describes the dash to register solar photovoltaic (PV) energy projects in Spain last year, as high incentives triggered a flood of licence applications.

The clamour led to a speculative bubble in which investors presented schemes with a total capacity of 1,300 MW – against a government target of 375 MW – in a year in which more than half the new solar PV capacity in the world was installed in Spain.

As the surge of applications – many of them containing errors or lacking adequate financial backing – swelled to a torrent, the government was forced to intervene, setting a deadline for registering projects and fixing new ceilings for total capacity.

The solar rush has led the government to overhaul legislation for all renewable energies, redefining capacity ceilings for wind, hydro and biomass production as well as solar in an effort to assert greater control over the country’s energy mix and to filter out non-viable projects.

This intervention to dampen the excitement has reignited the debate over the cost of renewable energy, the future of the nuclear sector and the possibility, as one think-think close to the Socialist government puts it, of energy in Spain being “100 per cent renewable by 2050”.

In May, Ignacio Galán, chairman of Iberdrola, the country’s biggest energy utility and the world’s largest producer of wind energy, proposed a plan whereby the country produced 40 per cent of its electricity from renewable sources, 40 per cent from “efficient” thermal fuels, mainly natural gas, and 20 per cent from nuclear plants.

By the end of this year, renewable sources are expected to account for almost a quarter of national electricity production, well above the EU average in 2008 of less than 8 per cent. Depending on weather conditions and demand, wind energy alone can account for 30 – even 40 – per cent of power generation at particular times.

In a world in which the election of Barack Obama to the US presidency and the global recession have given new prominence to renewable energy as a means of tackling climate change and a stimulus for economic growth, Spain stands out as a pioneer of the green energy revolution. Many other countries now hope to follow suit.

After more than a decade of strong investment, Spain is Europe’s second largest producer of wind and solar energy after Germany. As a mountainous, but not densely populated country with long hours of sunlight, it benefits from favourable natural conditions.

But the push into clean energy is also driven by sheer necessity. Spain relies on imports for 81 per cent of its energy needs, subjecting the economy to the volatility of world oil prices. Imported oil and gas accounted for 47 percent of a trade deficit tof €94bn in 2008. Spain is also one the EU countries furthest away from meeting its international commitments to reduce CO2 emissions.

As the government budget swings from a surplus of 2.2 per cent of GDP in 2007 to a forecast deficit of more than 9 per cent next year, some analysts are calling into question the cost of the state incentives paid to encourage investment in clean energy. These totalled €950m last year.

The Spanish association of wind energy producers says these incentives have to be put into the context of an estimated 20m tonnes of CO2 not emitted, 500m tonnes of oil not imported and €2.5bn in exports of renewable energy technology – now worth more than exports of Spanish wine, according to energy industry officials.

Most analysts agree that these savings outweigh the cost of tariff premiums paid by taxpayers.

The “feed-in” tariff system adopted in Spain provides clean energy producers with a guaranteed remuneration at a premium to the market rate for electricity over a fixed number of years.

By giving investors the long-term financial stability to raise finance, it has proved a highly successful business model – almost too successful, in the words of one energy company executive commenting on the solar PV rush.

“The solar PV tariffs on offer were too generous,” says Miguel Salis, chief executive of N+1 Eolia, which manages Spain’s largest independent wind and solar PV operator. “This triggered a flood projects and left the government without any control over the total capacity being built.”

In response, the government is introducing legislation that redefines capacity limits for each type of renewable energy, cut-off dates for submitting applications and strict pre-qualification rules on the financial viability of would-be investors.

As each capacity target is met, the government will set new tariffs and a new deadline for the next tranche of capacity in each area, steadily reducing the premiums paid, as renewable technologies become more competitive.

According to operators, production costs for wind energy are already close to those of conventional energy sources.

“Spain needs to balance its renewable energy needs with what it can afford,” says José Guardo, a lawyer who specialises in renewable energy at Garrigues, Spain’s largest law firm.

“Money that is spent on solar PV tariffs, for example, cannot be spent on other types of clean energy. The new legislation will give the government more control over the type of energy capacity built and who builds it.”

Spanish companies have used the technological and business experience they have gained at home to become world leaders in the renewable energy sector.

Juan Sáez, general director of Acciona, a leading Spanish utility, says global stimulus programmes amounting to $436bn, of which 67 per cent is earmarked for energy, will create huge overseas opportunities for Spanish renewable companies.

By Peter Wise