Spain: Another deep cut for renewables to come

After weeks of political discussions in Spain, it has become clear that owners of PV systems have to face another round of severe cuts in their feed-in-tariffs (FIT) — retroactively. According to national media, the reduction could range from 10 to 20%.

The Iberian country is still suffering from the harshest economic downturn since the death of dictator Francisco Franco in 1975 and the government is therefore looking at every possibility to save costs and to maximize state revenue. As a result, the entire energy sector is set to carry new burdens.

According to an article published in the Financial Times, the Spanish government is examining what implications new FIT cuts would have on the account balances of the national banks. Many Spanish credit institutes are still suffering under the real estate crisis, which pushed the country into recession in 2009. Bad loans from the PV sector could further harm their solvency.

Australian investment company Macquarie estimates that the Spanish banks have given €25 billion ($33.2 billion) in loans to finance national PV installations, which are still on their balance sheets. There are rumors that a "photovoltaic bad bank" may be created to administer all of the loans that borrowers would not be able to pay back if the FITs were cut again.

Although Madrid has not yet decided which measures it will impose, there is no doubt that the government will take action to solve the deficit in the public energy sector. This so-called tariff deficit currently amounts to €25 billion ($33.2 billion). It is the difference between the system costs and the regulated electricity prices. Unlike in countries like Germany, Spain’s FITs are not part of the electricity bill but rather paid by the National Energy Commission (CNE) and

thus contributes to the system costs creating a significant part of the tariff deficit.

Even though the government has cut FITs retroactively and introduced new taxes for electricity in the past, the deficit has not shrunk.

The problem in Spain is that revenue has continued to decline as demand for electricity remains low in view of the weak economy, while FIT payments are still high.

The government has announced plans to introduce the new regulations as part of a major energy market reform that will come into effect before Spain’s summer break starts in July.

Like all other players in the energy market that will be affected by the reform, PV sector representatives have declined to comment on the possible plans. The industry association UNEF said they hope that the changes will be done reasonably.

Edited by Edgar Meza