Spain to retroactively cap renewables returns

S&P warns that new legislation proposed in July could see returns in the solar and wind sectors capped at circa 7.5%.

Long-suffering participants in Spain’s renewables sector might be about to get dealt a further heavy blow if recently announced regulatory changes are enacted into law.

Following proposals in July to help curb the country’s staggering €26 billion electricity deficit – a 12-year mismatch between the price paid by consumers and the actual cost of producing and distributing electricity – ratings agency Standard & Poor’s (S&P) warned that “the measures represent a complete overhaul of the system that remunerates renewable energy producers”. 

In a nutshell, the Spanish government wants to move away from formula-based systems, like feed-in-tariffs or premia over wholesale market prices “to a mechanism based on earning what the government decides is a ‘reasonable return’”. 

S&P explains that compensation for wind and power producers might, if the measures are made into law, be “linked to Spanish 10-year sovereign bonds plus 300 basis points. This equates to a 7.5 percent return per year […] which may be lower than the return that the renewable power producers previously expected under the feed-in-tariff system”. 

Such a move might reduce returns in the solar photovoltaic sector, for example, by as much as 40 percent, forcing several plants to close altogether, S&P highlighted. 

“We also believe that the reform reduces the visibility and predictability of renewable energy producer’s cash flows, because the same return can be obtained under very different cash flow profiles,” the ratings agency added. 

As with previous regulation introduced by the Spanish government in 2007, 2012 and 2013, the proposals will be retroactive in scope, affecting existing and future projects, and will potentially hit “oldest projects and technologies [the] hardest,” S&P’s argued.