Institutional Change, Specific Investments and Photovoltaic Power Plants: The Empirical Effects of the Energy Policy of “Solar Farms” in Spain

The Spanish economy has historically relied heavily on oil as a source of energy, and this has led to a political and economic debate on the Spanish energy model. This is particularly evident in the twenty first century when efforts have been made by Spanish political decision-makers to contain such strong dependence and furthermore try to develop renewable energies in order to have a more diverse, sustainable and cleaner energy model. Therefore, the Spanish government introduced a bonus policy for installation and exploitation of photovoltaic solar energy, which produced a strong sectoral increase and gave rise to a cumulative installed power rating of 4651 MW up to 2014. However, the institutional framework and the incentive policies for the sector were unstable between 2007 and 2014, and led to a substantial change in bonus policies applied by the different governments to the sector. Therefore, while Royal Decree no. 661/2007 established a special scheme that actually managed to increase photovoltaic installations in Spain through a bonus system, later the passing of several decrees and rules led to an institutional change that resulted in a reduction and cancellation of such bonuses and to a downfall of the sector.