Spain Slashes Prices 45% for New Ground-Based Solar Plants, 5% for Homes

Spain reduced subsidies for new solar-power projects while backing away from plans to impose cuts on existing generators after owners threatened lawsuits.

The government cut the above-market price to be earned by new ground-based photovoltaic plants by 45 percent in a Royal Decree, the Industry Ministry said today in a statement. Solar- panel installations on home roofs will make 5 percent less.

The decree may spare Prime Minister Jose Luis Rodriguez Zapatero’s administration from legal action by plant owners claiming as much as 1 billion euros ($1.4 billion) in damages while leaving him still struggling to plug a financial hole in the Spanish electricity system, which has delayed collecting about 14 billion euros of consumer bills.

“This is the only way the government could avoid a great controversy,” said Antonio Vazquez-Guillen, a partner at Allen & Overy in Madrid who represents solar plant owners. “This is a very good ruling for the photovoltaic industry.”

The only alteration for existing plants outlined in the brief statement by the government is for subsidies to expire after 25 years rather than be lowered under the previous law.

Photovoltaic plant developers have lobbied the government for months to honor earlier the laws that guaranteed above- market rates for 25 years. Industry Minister Miguel Sebastian in June told executives he intended to cut subsidies to existing plants by almost 40 percent, according to Photovoltaic Industry Association Chairman Javier Anta, who attended the meeting.

Restricting Hours

Just last month, Antonio Hernandez, general director of energy policy at the Madrid-based Industry Ministry said the government was likely to restrict the number of hours during which existing generators may earn above-market prices.

The government is looking for ways to reduce the cost of power for the Spanish grid so that it can close the shortfall in revenue the system generates without boosting prices for consumers ahead of a general election to be held by May 2012.

Annual subsidies for renewable power, which reached about 5 billion euros last year, have helped push the cost of delivering electricity to Spanish homes above the revenue from consumers each year since 2005 under the country’s system of government- controlled prices. The country’s more than 50,000 solar-panel installations earned more than half of the subsidies while generating 11 percent of its emission-free power.

Utilities such as Iberdrola SA and Endesa SA make up the shortfall by lending money to the electricity system, increasing their indebtedness. Subsidies for renewable energy account for much of the so-called tariff deficit which the government is legally obliged to eliminate by 2013.

The cuts for new plants will reduce the costs of the Spanish electricity system by an average 200 million euros annually over the next three years, the ministry said in today’s press release.

To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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