Spain Caps Earnings From Renewables in Subsidy Overhaul

Spain approved a clean energy bill that introduces an entirely new subsidy system that will cap the earnings of all existing renewable power plants.

Under the decree, generators will earn a rate of return of about 7.5 percent over their lifetimes, the industry ministry said in a statement today. This rate, which may be revised every three years, is based on the average interest of a 10-year sovereign bond plus 3 percentage points.

The bill is Spain’s latest move to contain the mounting cost of subsidies for clean energy plants, which generate almost a third of the country’s electricity. The measures are part of a wide-ranging power reform first announced in July, which aims to eliminate the growing gap between the system’s revenue and costs.

“The measures have three main objectives: grant stability to the system, guarantee reasonable returns on investment and provide certainty to the industry,” Industry Minister Jose Manuel Soria said in a press conference in Madrid today. Renewable energy subsidies had to be revised or the power system would have gone bankrupt, he said.

Soria said Spain has already paid about 56 billion euros ($76.5 billion) to clean energy generators since 1998 and will pay another 142 billion euros over their lifetimes. The subsidies, including those for co-generation, totaled 9 billion euros last year.

Retroactive Measures

The retroactive measures have angered the renewable energy industry, which says the government has acted illegally and will bankrupt many projects. The Asociacion de Productores de Energias Renovables, a lobby group, in February estimated they would cut more than 2,000 million euros in revenue for generators. In April, the government’s new regulator CNMC said they would cut revenue by 1,700 million euros this year.

Acciona SA, Spain’s largest wind operator after Iberdrola SA, said the decree is retroactive and will destroy the value of the company’s renewable energy investments in Spain. The company said in an e-mail it will challenge the rules in Spain’s Supreme Court.

Acciona already wrote down the value of its Spanish assets by 1.7 billion euros last year to reflect the lower subsidies expected. The rules cut about 40 percent of the earnings from its generation business in Spain.

The government announced in July that it would bring in a new system to replace feed-in tariffs, which grant above-market rates for power from clean sources. Today’s measures will be implemented retroactively to apply from July 2013.

Payouts under the new system will be calculated for each project, taking into account hundreds of parameters that will be published in a separate ministerial order. The order’s draft in February showed that wind plants would be the worst affected, with those completed before 2004 losing the right to subsidies. Plants will have to register to opt for the payments, which will come on top of what plants can earn from selling electricity to the wholesale market.

Spain has wind farms with about 23,000 gigawatts and about 60,000 solar plants with about 4.6 gigawatts in capacity, according to Bloomberg New Energy Finance.

(Ministry corrects rate of return in second paragraph.)
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