There aren’t many things in life that are free.
Off the top of my head I can think of two: the air that we breathe and the sun.
In 2015 though, Spain’s government went ahead and decided to start taxing the sun.
What I mean is, they punished consumers who had installed solar panels in their homes with a levy if they connected to the grid. Something that was soon labelled ‘sun tax’.
The argument was that if not, it made the system unfair as people with solar panels avoided paying for maintaining the system.
The whole thing was quite crazy.
The debate made it to the supreme court, where solar panel users lost. As the court saw it, the tax had to stay because it was a contribution to the overall system. Think of it like paying for a toll to use the highway.
Anyway, the new tax put the brakes on the advance of renewables in Spain.
Things ARE changing
But boy, things ARE changing.
The government revoked the sun tax in 2018.
And now Spain’s government is moving through a new law in a push to transition to renewables quicker.
‘Spain’s cabinet approved on Tuesday a decree aimed at smoothing the rollout of renewable energy generation, with measures to combat speculation in the market, cut red tape and overhaul an outdated auction system to reassure investors and lower prices.
‘Spain wants to make use of rich natural resources including prodigious sunlight both to reduce pollution and create jobs, in response to the devastation the coronavirus has wrought on an economy that relies heavily on tourism and cars.
‘It follows plans being developed by the European Union (EU) to use low-carbon investments to battle the downturn. Spain is working on joining a handful of wealthy nations embedding targeted emissions reductions into law.’
One of the key aspects is the idea of an ‘independent aggregator’, where users can combine their demand or excess supply and join in the market.
COVID-19 has been a catalyst for change in many areas and the shift is quite clear in the energy market. The virus is expediting the decline of fossil fuels.
Travel restrictions, people working from home and a drop in global trade all translated into an oil demand collapse earlier this year, along with oil prices.
So far, it has sparked a bunch of write-downs in the industry from the likes of BP and Royal Dutch Shell. This week, Oil Search Ltd [ASX:OSH] and Woodside Petroleum Ltd [ASX:WPL] also followed suit with write-downs.
While oil demand crumpled, the share of electricity coming from renewable energy spiked during lockdown in several countries, as you can see below.
What’s exciting though is that there are a bunch of incentives converging into renewable energies.
Consumers are interested in making the change.
Governments are also pushing for a recovery in renewables. One reason for it is that it will create jobs.
But, as I’ve written before, the virus is disrupting supply chains. Countries around the world have realised the importance of securing their supply chains and looking at diversifying or even bringing some manufacturing back home.
In a report last year, the Australian Industry Group identified a few challenges for local manufacturers, with one of the big ones being high energy costs which were squeezing margins.
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Push in the trend for renewables
Costs for renewables keep falling.
And we’re also seeing investment starting to flow in.
In the last couple of weeks, we’ve heard an Australian super executive talking about markets punishing the old economy and companies that are ‘climate laggards’.
First State Super is also looking at getting rid of their shares on coal miners for protection.
From the Sydney Morning Herald (emphasis added):
‘First State Super, which holds $130 billion in retirement savings, is distributing a new climate plan among its members detailing initiatives to shield their money from the threats of global warming, including setting a 30 per cent emissions-reduction target across its investment portfolio by 2023 and a 45 per cent cut by 2030.
‘First State chief executive Deanne Stewart told The Age and The Sydney Morning Herald climate change posed the single biggest risk to Australians’ retirement savings, and superannuation investors must “take bold and decisive action now” to safeguard members’ long-term interests.’
As I said, there are several incentives aligning and converging here. Consumers, governments and economic. All of which could result in a push in the trend for renewables and more pain for fossil fuels in the future.
Stay tuned for more!
For The Daily Reckoning Australia