Estonian renewable-energy projects will face higher bank-financing costs if Parliament approves retroactive changes to subsidies they receive, said Priit Perens, the head of Swedbank AB’s local unit.
With government financing included in cash-flow calculations made by banks to assess the viability and cost of such projects, changes to subsidies will create greater uncertainty for investment in renewable energy, Perens, also the chairman of the Estonian Banking Association, said in an interview in the capital, Tallinn, yesterday.
The subsidies, financed by consumers through their energy bills, will be linked to the market price of electricity and will decline 15 percent to 20 percent, affecting both new and existing projects, according to legislation under consideration in Parliament. Lawmakers will discuss the bill, which also requires clearance for state aid from the European Commission, in the second of three readings on Feb. 27.
“This is about making retroactive changes and how this affects investment,” Perens said. “We have so far viewed agreements with the state as virtually risk-free. We will be forced to review this if such amendments are approved.”
Producers of renewable energy may lose as much as 43 million euros ($58 million) in revenue if legal changes are made, according to the Estonian Renewable Energy Association. Renewable-energy companies “are forced to consider options to protect their investments, including a legal challenge in regard to the amendments to the existing support scheme,” it said in an e-mail on Feb. 5.
Estonia will honor its commitments to investors, Prime Minister Andrus Ansip told Bloomberg on Jan. 31, when asked about renewable-energy legislation. Estonia’s investment environment isn’t worsened by the amendments, which take into account the liberalization of the country’s electricity market this January and reduce the burden on consumers, Economy Minister Juhan Parts said in an interview last month.
An increase in subsidies in 2007 led to new investment by companies such as Fortum Oyj, the second-largest Nordic utility, and Nelja Energia OU, majority owned by Norway’s Vardar AS.
“As a result of the discussions on the renewable energy subsidies, several investments have been canceled,” Perens said. “Sure, projects are still being considered, but there’s more of a wait-and-see attitude. As a bank, we’re certainly more cautious now.”