The Eurozone

Once Spain joined the Eurozone it became impossible for currency fluctuations to balance capital flows and trade into and out of the regional economy.

Indebtedness accumulated to an unsustainable level and growth has now faltered.

Some economists argue that there is a fundamental problem in having a shared currency without a true commonwealth; in which debt is the centrally managed, common burden, of the entire currency region.

Internal free trade and freedom of labour mobility are necessary but not sufficient.  These too are more problematic in Europe, due to language and educational differences, than in the US or Australia.

Centralised monetary management was a lesson Australia learnt very early after the founding of our Commonwealth; with the States soon surrendering control over borrowings and eventually most taxation. Premier Lang in NSW fortunately lost that battle; and was dismissed by the Governor as a result.  There is more detail elsewhere on this website  (click here). 

In due course we also learnt not to peg our currency to sterling or the US dollar. Similarly other commonwealths like the US, UK, Canada and Switzerland have centrally managed currencies; banks and borrowing mechanisms; not that the US has been a model of good management in this respect recently.

Today Spain is no longer a world power but it is remarkable for its electrical power.  Renewable energy installations seem to be everywhere.  I’ve already mentioned wind-power but photo-voltaic (PV) solar panels can be seen mounted on buildings all over southern Spain and can even been seen large blocks amongst the olive groves. 

One of many PV Solar installations - still very expensive electricity

The largest thermal solar plant in Europe is just outside Grenada; Andasol parabolic trough solar thermal power plant - see elsewhere on this website (click here).  

Spain is close to the antipodes of the north island of New Zealand; with a climate similar to Southern Australia.  Australian gum trees grow very well there; as do Spanish plants, like oleander, in Australia. 

Spain has just over twice the population of Australia (46.1 m and 22.7 m) so I expected, given a similar climate, total electricity generated would be close to double Australia’s.  On looking this up on the International Energy Agency (IEA) website I was surprised to discover that Australian electricity consumption per capita is much higher; in part due to higher GDP per capita but also because our electricity price is lower.  So Australia with half the population consumes almost as much electricity as Spain; both domestically and in industry and commerce. 

There the similarity ends. Australia generates almost our entire needs from fossil fuel: 78% from coal; 15% from gas and oil; 5% from hydro; 1% from wind and 0.1% from solar.  

Only 56% of Spain's electricity comes from fossil fuels; mostly from gas and oil imported from oil fields across the Mediterranean. The non-fossil sources are: 18% nuclear; 13% wind; 10% hydro; and 2% solar.

This makes Spain a World solar and wind super-star.  It generates twice the proportion of both wind and solar achieved by Germany; often held up as a world example of successful renewable energy strategies. 

Solar is currently the most expensive source of mains electricity; followed by wind. Both are much more expensive than coal, nuclear and hydro; generally the cheapest.  For example Denmark that gets nearly 20% from wind, the greatest proportion in the world, has the most expensive electricity in Europe.  But Denmark have no nuclear; hydro; and little solar so they are nearly as fossil fuel dependent as Australia.

Countries with relatively low price electricity use little wind or solar: France relies on 76% nuclear; 11% hydro; and less than 2% wind and solar combined.  It also has a famous tidal power station, providing around a tenth of a percent of its electricity needs.  Both Sweden and Switzerland rely on a roughly equal mix of nuclear and hydro electricity.  

It might be speculated that electricity cost and reliability makes industrial development less attractive in Spain than it once was; possibly another factor in the growing economic inequalities between north and south confronting the Eurozone at present.  Again this argues for a freeing of Europe's electricity market so that market forces determine investment and the location; type and scale of electricity assets.

Spain is crisscrossed with power grids

But this can’t be the only factor or Denmark would also be a problem State; and it is not.  The major contribution is more likely to be that much of the renewable energy is funded by large debt burdens apparently attributable to the region rather than to the technology providers or entrepreneurs.  

Spain happens to be geographically well located for wind and solar energy; just as some regions are well suited to dams. There are great differences in the cost of producing electricity by these differing means.  In order for solar and wind power to be competitive very large implicit subsidies are required; either reducing the cost of the initial capital investment or as an ongoing subsidy to the price of energy.

Australia is physically far larger than Europe but has a single eastern electricity market serving all the States except Western Australia where even a very high voltage DC link would involve excessive transmission losses.  As a result, very the large subsidy for wind power in the smaller states Tasmania and South Australia appears equally in electricity bills in NSW and Queensland, where wind power contributes negligible amounts to the local grid. 

In a European commonwealth, raising capital for a wind farm or solar plant would either be: a strictly commercial venture, in which entrepreneurs are assured of an ongoing subsidy through the common energy market; or funded by the central taxing authority to the extent of the additional capital cost necessary per unit of electricity generation.   This would be about half the cost in the case of wind generated electricity and over two thirds in the case of solar.

If there were good reasons to utilise renewable energy agreed centrally within the Eurozone it would not be a regional government responsibility to fund the non-commercial component of wind and solar projects; particularly as much of the equipment is manufactured, and intellectual property resides elswhere in Eurozone.  

When an energy subsidy was required it would then be a centrally agreed burden across all electricity consumers within the Eurozone.

Where this was not the case Spain might then have been better advised to simply burn more fossil fuel; build an aditional nuclear plant; or to import more electricity from France.