Spain nearing accord with solar producers on reducing subsidies

www.bloomberg.com
Jul 31, 2010

The Spanish government and solar power producers almost reached an agreement on reducing subsidies to the industry before officials suspended talks to assess savings from a clampdown on fraud, according to a memo from industry representatives at the meeting.

A draft agreement forming the basis of the talks said subsidies for plants already operating would be lowered by 5% to 15% over the next three years, compensated by extra years of payments, the memo distributed to members of the Photovoltaic Industry Association said. "This is better than the industry was fearing and probably does mean there will be continued investor confidence in Spain and most project developers will be all right", Jenny Chase, lead solar analyst at Bloomberg New Energy Finance, said today.

Prime Minister Jose Luis Rodriguez Zapatero's government wants to keep a lid on electric costs by paring back a 2007 law granting above-market prices for clean-energy producers. Solar price cuts would hurt plant developers including Actividades de Construccion y Servicios SA and Solaria Energia y Medio Ambiente SA.

A spokesman for the Industry Ministry didn't immediately respond to calls to his cell phone for comment. Before last night's meeting concluded on the brink of an accord, he said the government would insist on deeper rate cuts. Solaria, the Madrid-based solar panel maker and plant developer, rose as much as 2.2% today in Madrid trading and was at 1.62 euros at 5:15 p.m, local time.

Leaked Document
Under the plan, operators of existing plants could opt to receive 85% of the subsidy they already get in 2011 and 2012 and 95% in 2013. The subsidies, now due to run 25 years from 2007, would be extended four years beyond the current expiration date. A second option would offer operators a smaller price cut in the first two years without the extension.

Industry representatives and officials failed to reach agreement over these terms, prompting officials to defer a final decision to give them time to quantify savings from new measures to tackle fraud in the industry approved by the government today, the memo said. "It's encouraging", association secretary Enrique Alcor said in the memo. Still, "We don't know which of the elements covered in recent days will remain in place come September".

The draft also speaks of an option where developers could escape the temporary subsidy cuts by taking a cap on the number of hours their plants can earn above-market prices. Ground-mounted systems would have a cap of 1,075 to 1,529kW hours and plants with trackers would earn 1,515 to 2,154kW hours. The Industry Ministry spokesman said yesterday the government is pressing to make that provision mandatory.

Project Incentives
Incentives for projects not yet built would be reduced 45% for those mounted to the ground and 25% for ones on roofs. Representatives of another industry group, the Photovoltaic Business Association, painted a different picture of negotiations today at a press briefing in Madrid. "We don't understand the negotiating position of the ministry. We don't know what objectives they are pursuing", association chairman Juan Laso said. "All the measures that we have proposed have been rejected".

Solar plant operators have been pressing Industry Minister Miguel Sebastian to maintain the prices set out in the 2007 law since April, when officials said they may cut the rate paid to existing plants in addition to ones yet to be built. Funds including London-based HG Capital and Denmark's AP Pensions have argued that the government was reneging on its legal obligation to maintain the subsidies for 25 years.

10 Times
Spain's 52,000 photovoltaic-panel installations earn as much as 440 euros ($573) aMW-hour, or almost 10 times the futures price for 2011 power in the wholesale market.

The premium was set at that level to spur investment in renewable forms of energy. The Spanish Banking Association estimated domestic banks have loaned 40 billion euros to renewable-energy projects. Some 600 photovoltaic plant operators may face bankruptcy if the subsidies are slashed, the Photovoltaic Industry Association has said.

Solar plants claimed more than half the 5 billion euros in renewable-power subsidies paid by homes and businesses through their bills last year, while producing 11% of Spain's emission-free electricity. Sebastian told executives last month that he planned to cut 1 billion euros from the annual subsidies. Germany has also scrapped tax breaks for solar power, and Italy is working to eliminate a minimum price set for emission-free power.

Spain will pare some of the support its solar operators receive by clamping down on operators who cheated on paperwork to qualify for the highest rates, under a Royal Decree approved today by the government. Companies that cannot prove their generators were connected to Spain's power grid before September 2008 will be forced to switch to the lower subsidy rate and repay excess earnings. About a quarter of the industry may be affected, the government estimates.