Spain announces 45% cuts in solar subsidies

Details have emerged of large cuts in subsidies to Spanish solar plants, a move that was feared by investors who have piled into Spain in order to take advantage of an extremely generous regime in support of the development of the renewable energy sector.

The Spanish government has announced that incentives for solar photovoltaic (PV) plants will be cut by up to 45 percent. The move is part of a programme of austerity measures designed to put public finances back on a sound footing.

In an announcement made on Sunday, the industry ministry revealed that premiums for new ground-based solar PV installations will be reduced by 45 percent; large roof-mounted plants by 25 percent; and small roof-mounted plants by 5 percent.

The cuts are subject to approval by Spain’s CNE energy regulator, and there is no indication at present as to when the cuts will be implemented.

Solar is the latest sector to be affected by the austerity drive, with the Spanish government having already agreed subsidy reductions for the wind and thermosolar sectors last month with renewable energy associations.

Spain has become the world’s second-largest solar power producer on the back of its subsidies and will have an estimated PV capacity of 4,021 megawatts by the end of this year. But, according to Reuters, the subsidies meant that government-backed debt held by utilities totalled €6.5 billion in 2009.

One area of controversy remains unresolved by the latest announcement – namely, investor fears that subsidy cuts will also be applied retroactively to existing solar PV plants. The government is understood to have proposed a 30 percent reduction in tariffs for plants already built, but investor representatives are understood to have claimed any such move would be illegal.

According to consultancy New Energy Finance (NEF), banks have financed about 80 percent of Spanish solar plants on the back of base cases which the government now threatens to change.

This would be particularly catastrophic 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 NEF data.