EU Commission Balks at Spain Halt to Renewable Energy Subsidies

Spain’s decision to temporarily halt subsidies for new renewable energy projects will hurt investments in the industry, the European Commission’s energy spokeswoman said.

“The suspension of all new renewable energy projects will have a disturbing impact on investment in this sector,” the EC’s Marlene Holzner said today by e-mail. “Reforms should be undertaken with the market players and not with such sudden stop-start approaches.”

Spain’s new conservative government halted subsidies for renewable energy projects on Jan. 27 to help curb its budget deficit and rein in power-system borrowings backed by the state that reached 24 billion euros ($31 billion) last year. It passed a decree stopping subsidies for new wind, solar, co-generation or waste plants not approved by that date.

The renewable plan may “help Spain toward its 1.5 billion-euro tariff deficit target for 2012” while reducing the risk that power companies suffer from a more damaging retroactive cut, Fitch Ratings said in a statement.

“This action on its own, however, will not eliminate the annual tariff deficit,” Fitch said. “Eliminating the annual deficit would be likely to require further rate increases to consumers.”

The country is Europe’s second-largest renewables market by installed capacity with 27,500 megawatts in wind and solar projects in operation. It got 20 percent of power demand last year from these plants, data from the grid operator shows.

‘Minimize Disruption’

The industry also provides about 110,000 local jobs, according to the Renewable Energy Producers Association.

The suspensions in a member-state facing major fiscal constraints may be temporary yet to reach 2020 renewable energy targets, reforms must be “managed carefully.” Holzner said.

“The commission would rather hope that reforms are undertaken following best practice across Europe and strive to minimize disruption and confusion to the investors and market players who are creating the jobs and growth Europe needs so much,” the EC spokeswoman said.

The Brussels-based organization used similar language when the previous Spanish government passed cuts to operating solar plants a year ago. Then, the commissioners for climate and energy sent an open letter to the government urging it to maintain a stable and predictable energy policy. No second letter is planned now, according to the spokeswoman.

‘Drastic Decision’

“The commission is right to point out that the halt is quite a drastic decision,” Ivan San Felix, analyst for Renta 4 Banco SA in Madrid, said by phone. Yet it’s “one of the many fast and clear measures that will be needed to reduce the deficit as much as Brussels asks us to.”

“Countries that can currently afford the tariffs will probably continue granting them,” he said.

The country’s three main industry associations also criticized the government’s decision and its effect on jobs amid record unemployment.

About 3,850 megawatts in renewable energy projects have permits to be built in the near-future with current subsidies, or 14 percent of current capacity, data from the lobby groups shows. Of this, photovoltaic installations amount to 427 megawatts, solar thermal power plants about 1,425 megawatts and wind projects 2,000 megawatts.

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