Spanish Energy Minister: ‘Spain Could Be the Solution’ for Europe’s Gas Woes

For years, Spain has been a poster child — for good and for bad– in energy policy. It became an early pioneer of renewable energy, and has a stable of world-class clean-energy firms. Yet it has spent years trying to overhaul government policy to rein in the runaway cost of going green. It was an early adopter of affordable, liquefied natural gas imports–yet has seen supplies from Egypt disrupted by the Arab Spring. Today, with Europe riled by worries about another energy showdown with Russia, Spain again sees a role for itself. Foreign Policy sat down with Spain’s Minister for Industry Energy, and Tourism, Jose Manuel Soria, to discuss a few of the biggest issues on his plate.

FOREIGN POLICY: From the point of view of the Energy Ministry, how do you see the Spanish and European-wide energy security situation these days, with Russia and Ukraine still battling, and Europe nervous about Russian energy supplies?

SORIA: Spain doesn’t have any supply worries today. Half our gas comes from pipeline from Algeria, and the rest is LNG imported into Spain’s 7 regassification plants — the most in Europe.

The problem of gas and the Ukraine crisis affects more directly the countries that are reliant on Russian gas, not Spain. But Spain could be the solution. How? Spain today has the pipeline capacity, the LNG terminals, the gas storage capacity, and we could supply 35 to 40 billion cubic meters of gas per year to the rest of Europe. That’s half the Russian gas that Europe gets via Ukraine.

We could supply that gas — that is to say, the answer to Europe’s gas problem is in Spain. But that’s only on paper. In reality, where we really have the problem, is the lack of physical interconnections with France. And that’s a European problem. Europe must, in my opinion, get more involved in developing those interconnections, precisely because in geopolitical terms, that would send a signal that Europe has alternative sources of supply.

FP: Is there much Spanish interest in natural gas from the United States, which just approved another couple of gas export terminals?

SORIA: There is. I was speaking about it in Washington with (U.S. Energy Secretary Ernest) Moniz. It wouldn’t be a short-term fix, but over the next five years or so, these exports could start to flow. But it wouldn’t happen overnight.

FP: Governments everywhere have spent years trying to promote renewable energy without breaking the bank. In June, the Spanish government approved a controversial and retroactive energy reform that launched a flurry of lawsuits and complaints about Spain as an investment destination. You’ve often spoken of "sustainable sustainability" to justify sharp cutbacks in green policies; is the Spanish recipe really the best way to promote renewables and protect the economy?

SORIA: The first step was to analyze what problem we had in electricity and why. It was a double-barrelled problem: We had an accumulated deficit in the power sector of 30 billion euros –[the difference between what it cost to generate power and what utilities make by selling it]– that was set to grow by 10.5 billion euros this year; despite that deficit, electricity rates had risen 70 percent in the last 10 years, hurting competitiveness and people’s income. The energy reform set out to control the deficit and stabilize power prices.

One aspect of that was to decrease government financial support for renewable energy. That meant going from subsidies to investment incentives. Subsidies, whether for wind, solar, or biomass, offered guaranteed rates of return above 15 percent, sometimes above 20 percent, for 15, 20, even 25 years. That was impossible to sustain; the system would go broke.

So we changed that to a system where we guarantee a reasonable rate of return — 7.5 percent of the investment — guaranteed by law for the life of the project. That, in our opinion, is what it means to provide legal certainty and regulatory stability.

FP: But many of the lawsuits and complaints by international investors argue that you retroactively changed the rules of the game overnight.

SORIA: It’s perfectly understandable that somebody who thought they were going to get a 20 percent return for 20 years now complains because they’ve been cut down to 7.5 percent. But when somebody invests in an economy seeking returns that are barely credible, based not on legislation but on a government decree, he’s taking a risk, a real risk. There’s less risk if you invest under the auspices of legislation, like in the new system.

FP: You’ve spoken a lot about turning your home region of the Canary Islands into an economic hub by taking advantage of its proximity to West Africa, serving oil, gas, and mining companies working there. But what about oil company Repsol’s $10 billion plan to look for oil off the coast of the Canaries? That’s caused a huge public uproar there, even though it would be a way to get local energy and create jobs at a time of massive unemployment.

SORIA: Spain uses 1.4 million barrels of oil a day, and 100 percent is imported. For Spain, if Repsol’s expectations are met, and they say there’s an 18 percent chance of oil there, we could produce on the order of 140,000 barrels a day there — 10 percent of the country’s oil needs.

That would have a huge impact on the trade balance: Spain’s bill for oil and gas imports each year comes to 36 billion euros. And for the Canaries, it would create industrial activity and good jobs. And as for tourism, the closest rig is 50 km away, on the maritime border with Morocco, which is already looking for oil there. It wouldn’t make sense if Morocco could keep looking for oil and we couldn’t.