elpais.com
Spain Subsidizes Geothermal Energy to Reduce Investment Risk and Attract Private Capital
Spain will include geothermal energy in its regulated energy activities, using a WACC formula to determine its return rate; high initial investment risks are mitigated by 50% government subsidies for exploratory drilling, particularly in the Canary Islands, which aim to attract private investment and reduce dependence on oil.
- What is the impact of the high upfront investment risk in geothermal energy projects on attracting private investment in Spain?
- The Spanish National Commission for Markets and Competition (CNMC) will include geothermal energy in its catalog of regulated energy activities. The CNMC uses the Weighted Average Cost of Capital (WACC) to determine the cost of capital for regulated activities, which influences the rate of return. For example, the CNMC sets the return rate at 5.58% for Red Eléctrica and 7.09% for renewables built before 2013.
- How does the Spanish government's subsidy policy for geothermal energy exploration aim to reduce the financial risk and increase private sector participation?
- Geothermal energy projects require high upfront investments for deep drilling (over two kilometers) to assess the resource's potential, creating significant uncertainty. This uncertainty is reflected in the high investment costs per MW, exceeding those of wind and photovoltaic energy. To mitigate this risk, Spain provides 50% subsidies for exploratory drilling, reducing the WACC during the high-risk phase and attracting private investment.
- What are the potential long-term implications of Spain's approach to regulating and subsidizing geothermal energy development on the country's energy independence and renewable energy portfolio?
- The high initial investment risk in geothermal energy projects, due to the uncertainty associated with exploratory drilling, is addressed by Spanish government subsidies focused on the initial exploration phase. This policy aims to lower the WACC during the high-risk period, making geothermal projects more attractive to private investors and facilitating the development of this renewable energy source in Spain, particularly in the Canary Islands, where oil dependency exceeds 95%. The success of this strategy could influence future renewable energy investment policies in other countries facing similar challenges.
Cognitive Concepts
Framing Bias
The article frames geothermal energy development positively, emphasizing its potential to reduce fossil fuel dependence and improve energy security, particularly in the Canary Islands. While presenting economic challenges, the overall tone is optimistic and supportive of government incentives. The use of the phrase "clean and inexhaustible resource" contributes to this positive framing. However, the article does acknowledge the significant financial risks involved.
Language Bias
The language used is generally neutral and objective, employing technical terms such as "WACC" and focusing on economic data and regulatory frameworks. However, the description of geothermal energy as a "clean and inexhaustible resource" could be considered slightly loaded, potentially downplaying any environmental concerns. A more neutral description might be "a renewable energy resource".
Bias by Omission
The article focuses primarily on the economic aspects of geothermal energy and its regulatory framework in Spain. It omits discussion of potential environmental impacts, both positive and negative, associated with geothermal energy extraction. Further, it lacks discussion of social impacts, such as land use changes or potential disruption to local communities. While acknowledging space constraints is reasonable, these omissions limit the scope of informed conclusions regarding the overall viability of geothermal energy.
Sustainable Development Goals
The article discusses the development of geothermal energy in Spain, a renewable energy source that contributes to reducing fossil fuel consumption and energy dependence. Government support, including subsidies for exploration and development, aims to facilitate the transition to cleaner energy sources, aligning with SDG 7 targets for affordable and clean energy.