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Spain Clean Energy Subsidy Cuts Raise Bankruptcy Risk

Source: Bloomberg - Wed 17th Jul 2013
 Spain Clean Energy Subsidy Cuts Raise Bankruptcy Risk

Spain's cuts to renewable energy subsidies will leave many project developers facing bankruptcy, 4 industry lobby groups said.

Industry Minister Jose Manuel Soria's decision to curtail profits for power generators by 2.7 billion this year "will lead many installations to bankruptcy because they won't be able to repay the credit that financed them," the Spanish Photovoltaic Union, or UNEF, said today in a statement.

The decision announced on July 12 calls for half of the savings to come from renewable energy generators and cap the rate of return for the industry at 7.5% before tax. That adds to previous reductions that have slashed state aid to renewables by as much as 40%, the lobby group said.

PM Mariano Rajoy's government is seeking to eliminate a 4.5 billion deficit forecast this year for the power industry. Renewables had already been hit by a 7% tax on their revenues introduced in December and a suspension of subsidies to new projects in January 2012. That followed measures in 2011 that limited the hours for which solar farms could earn subsidies.

UNEF's statement was issued on behalf of the National Association of Producers of Photovoltaic Energy, or ANPIER, Protermosolar, the industry association for thermal solar companies and the Association of Producers of Renewable Energy.

The government said the proposed cap on profits amounted to a "reasonable return" and that rates would be based on "an efficient and well-managed company."

The effective returns allowed will amount to 5.0 - 5.5% after tax, according to Shai Hill, an analyst at Macquarie Group Ltd. in London. That's below his assessment of the average cost of capital for larger renewable energy companies, he said.

The change "has serious implications for owners of renewable power plants and we may see a significant number defaulting on their loans," Hill said in an e-mail.

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