Spain approves retroactive cuts to solar subsidies

Parliament has approved a law which will retroactively cut tariffs in the Spanish photovoltaic sector by 30%. Local trade bodies have promised to fight the new law all the way to the European Court of Justice.

As expected, the worst has happened in Spain: Parliament yesterday has approved the government’s proposal to implement retroactive cuts of 30 percent to the feed-in tariffs received by the country’s photovoltaic (PV) plants.

The new law, known as Royal Decree 14/2010, will work by retroactively limiting the number of production hours that are eligible to receive the government’s feed-in tariff. This will translate into a 30 percent cut in subsidies for some 90 percent of all PV plants for the next three years, estimates Spain’s Asociación Empresarial Fotovoltaica (AEF), a trade body.

From 2014 onwards, AEF says limits to production hours are less stringent, and should amount to subsidy cuts of up to 10 percent. The new law has, however, extended payment of feed-in tariffs to 28 years up from the 25 stipulated in a previous law, approved on November 2010.

But the extension is likely to leave a bitter taste in the mouth of PV producers since before November 2010, when Royal Decree 1565/2010 was approved, PV plants had no restrictions to the number of production hours eligible to receive feed-in tariffs. AEF and other industry representatives have vowed to fight both laws all the way to the European Justice Court.

Juan Laso, the head of AEF, expects the new law to open the door to a wave of bankruptcies. In the worst case scenario, “the vast majority of the 60,000 small PV investors operating in the market [will] automatically default.”

Defaults are likely to be bad news for the likes of BBVA, which is said to be the biggest lender in the sector with some $3 billion in loans granted; Santander, the second-largest lender with some $2.3 billion committed; and Caja Madrid, which has lent $1.9 billion to the sector, according to data from New Energy Finance, a consultancy.

Perhaps anticipating what's to come, Miguel Sebastian, Spain's minister of industry, has offered to work with PV investors to provide or help them get access to new credit lines.

Sebastian Mariz, managing partner at EPPA Espana, a consultancy specialising in European and Spanish legislation, argues the forthcoming refinancings might actually benefit some Spanish banks. “Solar PV parks have largely been financed by the Spanish savings banks, cajas, who are desperately in need of cash to meet recapitalisation requirements just set by the Ministry of Economic Affairs,” Mariz said.

He continued: “Solar PV owners, promoters and developers will now have to renegotiate loan terms and conditions, which are likely to be favourable to the cajas.” But Mariz also believes the tariff cuts will prompt a reorganisation of the sector, favouring large companies:

“The final twist on this is that it is in the interest of the large utility companies to buy these solar PV parks at a discount, which the current owners, promoters and developers will have to accept because the 30 percent cut is effectively a 30 percent discount on the sale price.”

The Spanish PV sector has become a victim of its own remarkable success, as Spain rocketed to the top of the world’s solar power producers. Its success has happened on the back of generous government subsidies that, in 2009, amounted to €2.7 billion of PV tariffs, accounting for some 43 percent of all subsidies paid to the renewables industry.