In a move likely to inspire a sigh of relief from the solar industry, Spain has approved a program that will provide generous incentives for up to 500 megawatts of solar projects next year.

Spanish Deputy Prime Minister Maria Teresa Fernandez de la Vega announced the decision from the cabinet Friday.

The new program enhances the country's current set of solar incentives, which will expire Monday. In addition to approving the higher cap for 2009, the cabinet also set a nationwide 460-megawatt cap for 2010, Reuters reported.

Spain already has become a lucrative market for solar companies worldwide thanks to its generous subsidy program, which requires utilities to buy solar power at government-mandated rates through long-term contracts. The extra cost is passed on to consumers and businesses as taxes.

The country originally set a 400-megawatt cap that it expected would last from 2007 to 2010, but the solar market reached the limit within the first year. The government froze the incentives, allowing solar companies to continue to take advantage of the program while lawmakers debate a new program (see Is Spain Shining Too Brightly). 

As a result, solar companies have rushed to lock in the existing incentives before the lower solar-electric rates are expected to take effect. In fact, Spain is likely to see more than 1 gigawatt of new installations for this year.

The government raised the 2009 limit to 500 megawatts after intense negotiations with the country's solar industry association. The government initially proposed a 300-megawatt cap and a reduction of solar-electric rates by as much as 35 percent for 2009 in order to curb what it considers a costly and unsustainable growth of the solar market (see Spain Could Reduce Solar Subsidies by 35%).

During a solar conference in Spain earlier this month, speculations circulated about the likelihood of the government raising the cap to as much as 500 megawatts (see Solar Industry Convenes in Spain, Makes News and Analysts Pick Next Years Solar Winners).

Reuters also reported earlier this week that the government would consider a 500-megawatt proposal (see Spain Considers 500MW Solar Cap). The proposal called for adding 200 megawatts for ground-based solar power arrays, on top of the originally proposed 100 megawatts. The remaining 200 megawatts are slated for rooftop installations, reported Reuters.

The plan approved by the cabinet turned out to be slightly different, however. A government press release said 233 megawatts will be allocated to ground installations and 267 megawatts for rooftop installations in 2009. In 2010, the limits will drop to 193 megawatts of ground-based power plants and 267 megawatts for rooftop panels.

The cabinet also approved new electric rates, called feed-in tariffs, that will be lower than the current rates, but higher than those initially proposed for next year.

The rates approved by the cabinet will entitle qualified solar power projects to get 32 to 34 euro cents per kilowatt hour for rooftop installations, compared to an previous proposal of 33 euro cents per kilowatt hour. Solar power plants installed on the ground could get 32 euro cents per kilowatt hour instead of 29 euro cents.

The current price, set to expire next week, is about 45 euro cents per kilowatt-hour, depending on the size, not the placement, of the solar panel installations. The price has increased from 42 euro cents in 2007 to allow for inflation adjustments.

Solar-panel makers in Europe, the United States and Asia have done brisk business in Spain based on those tariffs. But uncertainties over the future incentives in Spain have worried many companies (see Solar Firms Struggle to Forecast 2009). The solar subsidies are intended to gradually aid solar electricity to become cost-competitive with conventional power. The German government also haggled with its solar companies earlier this year to determine its feed-in tariff reductions (see Solar Prices Set in Germany).

The news of Spain's willingness to raise the installation cap arrived just before the U.S. Senate approved nearly $18 billion in tax incentives that could extend a tax credit for solar power plant developments for eight years as well as provide a slew of tax credits for other renewable energy investments, if the House agrees (see Senate OKs $18B in Tax Credits).

The House is scheduled to consider the Senate bill today, and will likely add measures that will then require another Senate vote, the Associated Press reported. The existing renewable-energy tax credits are set to expire at the end of this year.