VZCZCXRO9585
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #1104/01 2941410
ZNR UUUUU ZZH
R 201410Z OCT 08
FM AMEMBASSY MADRID
TO RHMCSUU/DEPT OF ENERGY WASHINGTON DC
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3607
RUEHC/SECSTATE WASHDC 5462

UNCLAS SECTION 01 OF 05 MADRID 001104 
 
SENSITIVE 
SIPDIS 
 
DOE FOR A.PATTERSON, PI:G.KERESTES/K.BALLOU/G.BISCONTI, 
EERE:A.CHIANG 
STATE FOR EUR/WE AND EEB/ESC/IEC 
 
E.O. 12958: N/A 
TAGS: ENRG OVIP PREL SP
SUBJECT: SCENESETTER FOR DOE DEPUTY SECRETARY KUPFER'S 
VISIT TO MADRID OCT. 28-29 
 
MADRID 00001104  001.2 OF 005 
 
 
1.(SBU) Summary:  Embassy Madrid warmly welcomes your visit. 
Your meetings with GOS officials and business leaders and 
your press events will strengthen our close relationship on 
energy issues, particularly renewable energy.  After 15 years 
of rapid economic growth, Spain is feeling the pain of an 
economic slowdown that has hurt the Zapatero government's 
public standing.  Although the Spanish banking sector is in 
better shape than many of its European counterparts, the 
international credit crisis has aggravated the economic 
slump.  Our bilateral relations have recovered from a low 
point after Spain pulled out of Iraq in 2004 and are based on 
strong cooperation in areas such as the military, law 
enforcement, counterterrorism, and renewable energy.  End 
Summary. 
 
--------------------------------- 
Tough Times for Economy, Zapatero 
--------------------------------- 
 
2.(U) President Zapatero's Socialist party (PSOE) narrowly 
defeated the conservative Popular Party (PP) in general 
elections last March.  The PSOE gained seats in Congress but 
fell just short of an absolute majority, forcing it to barter 
with small regional parties and the leftist IU to pass 
legislation.  Foreign affairs did not play a major role in 
the campaign, but the PSOE reminded voters that it removed 
Spain's troops from an unpopular war in Iraq. 
 
3.(U) Since Zapatero was re-elected, the GOS has faced a 
deepening economic slump.  After 15 years of rapid economic 
growth, the end last year of a long construction boom has led 
to surging unemployment, now likely over 11 percent. 
Inflation is above 4 percent, the economy may already be 
contracting, and 2009 is expected to be an even more 
difficult year. 
 
4.(SBU) Months of worse-than-predicted economic news have led 
to widespread criticism of Zapatero and his economic 
policymakers for their upbeat predictions during the campaign 
and for having downplayed the economic difficulties long 
after many others were saying Spain was in a crisis.  Public 
skepticism has been aggravated by the failure of a series of 
GOS measures to noticeably affect the slowdown and by 
Zapatero's efforts to blame the U.S. subprime mortgage crisis 
for all of Spain,s troubles.  Now that the budget surplus of 
the last four years has become a rapidly growing deficit, 
tensions have heightened over regional government financing 
issues and the 2009 budget. 
 
5.(U) Spain,s banks have so far weathered the international 
financial crisis of the last several weeks better than their 
counterparts elsewhere in Europe.  Conservative regulation by 
the Central Bank meant that they had high provisions against 
losses, and almost none had invested in U.S. mortgage-based 
securities.  However, Spain,s domestic property crash has 
left banks with bad construction and real estate loans, 
rising unemployment has contributed to increased 
delinquencies, and the country,s very high current account 
deficit makes it dependent on crossborder lending that is now 
scarce. 
 
6.(U) The medium-term economic picture remains reasonably 
favorable.  Spain has the world's eighth largest economy and 
is the second largest international tourism destination and 
eighth largest auto manufacturer.  Its per capita GDP (on a 
PPP basis) is expected to pass Italy's in 2010.  In the 
bilateral economic relationship, investment is more important 
than trade.  U.S. investment has played an important role in 
the Spanish economy for decades, and U.S. firms employ over 
200,000 Spaniards.  Spanish investment in the U.S. has surged 
in the last few years, particularly in renewable energy, 
banking, and toll road construction.  In 2007, Spain was the 
fourth largest foreign investor in the U.S. 
 
---------------------------------- 
Bilateral Cooperation and Security 
---------------------------------- 
 
7.(SBU) U.S-Spain relations were seriously damaged by 
President Zapatero's decision immediately after his election 
in 2004 to abruptly withdraw Spanish forces from Iraq. 
However, over the last several years, both countries have 
made a concerted and successful effort to rebuild the 
relationship based on strong mutual interests in 
counter-terrorism, fighting narcotics trafficking and 
 
MADRID 00001104  002.2 OF 005 
 
 
organized crime, and rapidly expanding economic ties.  The 
real bilateral story is found in novel initiatives such as 
the HSPD-6 agreement we signed last year to facilitate the 
sharing of information between our national counter-terrorism 
authorities.  Following the March 11, 2004 train bombings, 
Spain remains a target of Islamic extremists.  Al-Qaeda 
leaders often call for the recapture of the medieval "Al 
Andalus," and the uncovering in January of a cell allegedly 
sympathetic to Al-Qaeda and operating out of Barcelona has 
shown the public that this threat is not an idle one. 
 
8.(SBU) Spain is no stranger to terrorism, having fought the 
domestic Basque terrorist group ETA for almost 40 years.  ETA 
has been weakened by a series of arrests stemming in part 
from improved cooperation from France.  However, it retains 
the capacity for violence.  It has carried out several 
small-scale bombings and killed two people this year. 
 
9.(SBU) Narcotics trafficking is another area of common 
concern and excellent cooperation.  Spanish authorities 
acknowledge that Andean cocaine is a serious problem here, 
and Colombian trafficking organizations are active in Spain. 
Money laundering is another serious issue.  We are increasing 
bilateral cooperation and encouraging Spain to continue 
engaging more aggressively with law enforcement authorities 
in key Latin American countries. 
 
10.(SBU) Spain, second only to the U.S. in terms of 
investment in Latin America, is actively engaged in the 
region. In addition to cultural and historical ties, Spain 
shares our interest in strong democratic and free market 
institutions in the region.  Regarding Cuba, we share with 
Spain the objective of a peaceful transition to democracy but 
differ markedly on how to achieve this end.  Spain's 
socialist government has led the EU in calling for 
engagement, which it claims can encourage regime elements who 
want change, and in lifting restrictive measures in light of 
what Spain views as progress on human rights issues.  Spanish 
companies invested four million euros in Cuba in 2007.  The 
largest Spanish investments are in the tobacco and tourism 
sectors, but energy companies such as Repsol, Endesa, and 
Iberdrola are reported to have, or have had, interests as 
well.  Cuban FM Perez Roque visited Madrid the week of 
October 13, and Spanish President Zapatero reportedly plans 
to visit Cuba in 2009.  We take every opportunity to remind 
the Spanish that such measures only give oxygen to the Cuban 
regime and that Cuban dissidents need and deserve the active 
and visible support of democracies everywhere. 
 
11.(SBU) Spanish military cooperation matters.  The bases of 
Rota and Moron are strategic hubs, midway between the U.S. 
and Afghanistan and Iraq.  U.S. planes and ships account for 
around 5,000 flights and 250 port calls a year in Spain. 
Spain has nearly 800 personnel in Afghanistan and runs a 
provincial reconstruction team in Badghis province.  Spain 
has contributed some 150 million euros in Afghan 
reconstruction funds.  Planning is underway to allow the 
Spanish to train and equip an Afghan Army company, which we 
hope will be a prelude to the training and equipment of a 
full battalion.  Spain has nearly 1,100 troops with UNIFIL in 
Lebanon and about 700 in Kosovo.  Spain,s total commitment 
to the Iraq Compact was $225 million, and the GOS also has 
contributed $22 million to the Basrah Children's Hospital and 
a further $28 million in development funding. 
 
------------------------- 
Oil, Gas, and Electricity 
------------------------- 
 
12.(U) Although Spain is not dependent on Russian gas like 
many European countries, it does rely on imports for almost 
all of its oil and gas, so energy security is a significant 
concern.  Spain imports oil from a variety of suppliers, 
including Russia, Mexico, and the Middle East.  Last year, no 
one supplier provided more than Russia,s 22% of Spain,s 
oil.  About 70% of Spain,s gas is imported as LNG.  However, 
nearly all of the imported pipeline gas and almost a third of 
Spain,s total gas imports come from Algeria, leaving the 
country uncomfortably dependent upon one source.  Other main 
suppliers include Nigeria, Persian Gulf countries, Egypt, and 
Trinidad & Tobago. 
 
13.(U) The rapid economic growth of the last several years 
has led to a steady increase in electricity consumption.  The 
main electricity sources are gas, nuclear, coal, wind power, 
 
MADRID 00001104  003.2 OF 005 
 
 
and hydroelectricity, in that order.  The use of gas has 
grown rapidly in recent years and now accounts for around 40% 
of generation.  Nuclear production is around 20% of 
generation and has remained roughly constant in recent years; 
President Zapatero and the PSOE oppose new nuclear power 
plants and have committed to closing Spain,s existing plants 
as their useful lives end.  Coal-powered generation has 
fallen dramatically (down 39% in the first 9 months of 2008) 
for price reasons including the added cost of CO2 emissions 
permits.  It has accounted for a little over 15% of 
generation this year.  Wind generation is growing steadily 
and now accounts for over 10% of the total.  There are no new 
large-scale hydro projects, and hydroelectric generation 
varies from year to year with rainfall levels.  In this 
relatively dry year, it has accounted for around 8% of 
generation.  Solar and other forms of generation are still 
relatively minor sources of current generation, although 
investment in solar has boomed in the last couple of years. 
 
--------------------------------------- 
Renewable Energy Increasingly Important 
--------------------------------------- 
 
14.(U) Renewable energy is an increasingly important part of 
the Spanish economy and of our bilateral relationship. 
Abundant wind and sun and generous feed-in tariffs have 
helped make Spain a world leader in wind and solar power. 
Iberdrola is the world's largest producer of wind power, and 
Acciona is the third largest.  Gamesa, partially owned by 
Iberdrola, is one of the world,s largest manufacturers of 
wind turbines as well as operating wind farms.  Spain is also 
the world,s third largest generator of solar power and is 
undergoing a boom in both photovoltaic and concentrated solar 
projects; the GOS is particularly optimistic about the 
potential for cost reductions in concentrated solar projects. 
 
15.(U) Spain,s feed-in tariff system provides very high 
guaranteed inflation-adjusted tariffs for the life of the 
project for the first few hundred MW of projects that use a 
particular technology.  Future projects receive lower 
guaranteed tariffs.  For example, photovoltaic projects 
connected to the grid by last September 29 qualified for 
tariffs of over 40 cents(of a euro) per KWh.  The first 367 
MW of ground-based PV projects connected before the end of 
2009 will receive a still-generous 32 cents.  The steady 
decline in wind generation costs is an example of how the 
system has worked.  The guaranteed tariff for new wind power 
projects is around 7 cents/KWh, not much above the cost of 
other means of generation.  The high tariffs are supposed to 
be factored into overall consumer electricity bills; the 
volumes are small enough that the increase would be only 
around 8 percent so far.  U.S. companies are benefiting from 
Spain,s system both by investing in (AES) and by supplying 
(GE and U.S.-based firms) renewables projects in Spain. 
 
16.(U) A factor complicating the above description is that 
for the last several years, the GOS has not passed on the 
full cost of electricity to consumers and is building up a 
debt to generators for the remainder.  Although it has 
increased rates by faster than inflation this year, bills are 
still around 20% below the actual cost.  This is a matter of 
contention between the generators and the GOS, but it has not 
affected renewables policy discussions. 
 
17.(SBU) Spanish renewables companies see the U.S. as an 
increasingly important market.  Spanish companies own wind 
farms in at least 14 U.S. states and continue to expand. 
Iberdrola,s multi-billion-dollar acquisition of Energy East, 
which was concluded last month, reportedly was delayed over 
the company,s insistence that New York regulators allow it 
to keep Energy East,s wind assets.  Iberdrola plans to 
invest up to 7 billion dollars in U.S. renewables in the next 
few years.  Gamesa and Acciona own four wind turbine 
manufacturing plants in Iowa and Pennsylvania.  Acciona owns 
the world,s third largest solar plant, the 64-MW Nevada 
Solar One concentrated solar (parabolic trough) project. 
Abengoa Solar is building a 280-MW concentrated solar 
(parabolic trough) plant in Arizona.  The plant, expected to 
begin operation in 2011, will supply Arizona Public Service. 
Abengoa Biofuels has several ethanol plants in the U.S. 
 
18.(U) Your visit will contribute to our efforts to 
strengthen ties between our two countries on renewable 
energy.  In addition to the many investments mentioned above, 
Spanish companies and government bodies collaborate with DOE 
 
MADRID 00001104  004.2 OF 005 
 
 
on research.  NREL works with the GOS, Center for 
Investigation in Energy, Environment, and Technology (CIEMAT) 
and CIEMAT,s National Renewable Energy Center (CENER) on 
wind and solar topics.  Abengoa Solar has received five DOE 
or NREL contracts over the last year to develop parabolic 
trough and power tower technology.  Abengoa has won DOE 
grants for second-generation ethanol projects. 
 
19.(U) DOE/EERE helped post and the Spanish government 
organize the visit to Washington and Colorado last February 
of a renewable energy delegation of Spanish government and 
business leaders.  The group visited Washington and Colorado 
for meetings with federal, Senate, and state officials, 
business representatives, and the National Renewable Energy 
Laboratory.  The delegation, led by Ambassador Aguirre, met 
with then-Assistant Secretary Karsner and EERE COO Paul 
Dickerson.  Spain also sent a delegation to WIREC, although 
the event's timing a few days before national elections 
prevented ministerial representation. 
 
20.(U) Two issues that may come up in your meetings with 
government officials or Spanish companies are U.S. investment 
and production tax credits for renewable and U.S. biofuels 
subsidies.  During this year, Spanish companies have 
repeatedly raised with Congressional and USG officials the 
importance of the tax credits.  They were pleased with the 
8-year extension of credits for solar energy included in 
financial sector rescue legislation, though we have not heard 
reactions to the one-year extension of wind credits.  Press 
reports have indicated that the same legislation eliminated 
the "splash and dash" incentive that had sparked U.S. exports 
to Europe of imported biofuels but extended the biofuels 
subsidy that also encourages U.S. exports.  GOS officials 
have expressed interest in confirmation of the measures and 
their impacts. 
 
-------------- 
Climate Change 
-------------- 
 
21.(SBU) Climate change is one of the signature issues of the 
Zapatero Administration and one reason the GOS is so 
supportive of renewables.  The socialist government has 
firmly embraced the Kyoto Protocol, under which Spain 
committed to reduce greenhouse gas (GHG) emissions to 15 
percent above 1990 levels by 2012.  Despite generally popular 
initiatives to promote renewables and energy efficiency and 
to implement EU commitments, emissions are currently 50 
percent above 1990 levels, in part because of years of rapid 
economic growth.  Spain is the EU country most out of 
compliance with Kyoto and will not meet its 2012 commitment. 
That said, Zapatero remains committed to fighting climate 
change and, despite the economic slowdown, may be willing to 
commit to costly actions if necessary. 
 
22.(SBU) After Zapatero,s March re-election, the former 
Ministry of Environment was merged into the former Ministry 
of Agriculture and the profile of climate change was 
increased with the creation of a Secretary of State (Under 
Secretary-equivalent) for climate change.  GOS officials have 
expressed their frustration over not being included in the 
USG-initiated Major Economies Meeting process.  In bilateral 
meetings, USG officials have emphasized the USG's commitment 
to combating climate change without jeopardizing economic 
growth, the need to include commitments by developing 
countries, and our support for technological research.  The 
technological argument is likely to resonate with GOS 
officials; Minister of Trade, Industry, and Commerce 
Sebastian is seeking to encourage development of electric 
cars. 
 
--------- 
Palomares 
--------- 
 
23.(SBU) An issue that might possibly come up if you meet 
with CIEMAT officials (though they have agreed the meeting 
would focus on Spain's feed-in tariffs and renewables 
research) is the Palomares nuclear contamination.  A 1966 
collision of two Air Force planes caused four atomic bombs to 
fall near the southern coastal village of Palomares, 
dispersing plutonium across 558 acres.  Since 1966, the USG 
and GOS have worked together on remediation and monitoring 
efforts in the area.  DOE is providing $1.2 million to help 
fund a radiological mapping project due to be completed at 
 
MADRID 00001104  005.2 OF 005 
 
 
the end of this year.  The results are to be used to 
recommend final cleanup measures.  There is no agreement on 
who will pay for the final cleanup.  A DOE delegation visited 
Spain in July to receive preliminary results of the mapping 
project and begin steps towards a cleanup recommendation. 
Following the visit, both governments agreed to begin 
discussions with their militaries. 
 
----------------- 
Personal Security 
----------------- 
 
24.(U) In general, Spain is safe.  However, Madrid and other 
large cities attract a large number of criminals and 
pickpockets and frequent incidents of crime of opportunity 
against the unwary do occur.  It is best to carry only 
essential items including a photocopy of your passport's 
photo page.  Visitors can protect themselves against crime by 
being street-smart, alert and aware of their surroundings. 
Travelers are encouraged to 
review the most recent Worldwide Caution issued by the 
Department of State.  As the Department of State continues to 
develop information on any potential security threats to 
Americans overseas, it shares credible threat information 
through its Consular Information Program documents, available 
on the Internet at http://travel/state.gov.  Additional 
information regarding safety and security in Spain is 
available on the U.S. Department of State's website 
(www.embusa.es). 
AGUIRRE