December 23, 2010

New Spanish law aims to slash solar subsidies

Spain said on Thursday it would slash subsidies for its photovoltaic solar power industry, netting savings of around 2.2 billion euros ($3 billion) over three years, part of a law aimed at limiting the cost of power.

The law, which is targeting savings of 4.6 billion euros over three years, will also charge utilities an operating toll and temporarily reduce wind power subsidies.
European governments have poured billions of euros in recent years into renewable energy by requiring utilities to pay a premium for solar electricity in order to cut their greenhouse gas emissions and dependence on imported fossil fuels.

But Spain has been forced to review subsidies to limit electricity bill rises for consumers struggling with high unemployment and household debt.

"The goal is to rationalize the cost structure of the electricity system, so not just the consumers contribute to resolving the problem of the tariff deficit," Industry Minister Miguel Sebastian said after the weekly cabinet meeting.

The regulation, expected by markets, will require Spain's utilities, including Iberdrola and Gas Natural, to assume costs of around 670 million euros of the power saving policy.

In a release following the announcement Iberdrola largely welcomed the moves, though said it would mean an additional cost for the sector which it hoped would be the last.

"From a macroeconomic point of view Iberdrola hopes the application of these measures helps to return confidence to the Spanish economy as it deals with one of the pending structural reforms," the company said.

Spain's utilities hold some 16.5 billion euros of government-backed debt, known as the tariff deficit, on their balance sheets due to the difference between the cost of generating power and consumer prices.

The deficit covers unprofitable business areas such as supplying islands with electricity and, more recently, Spain's huge renewable energy roll-out.

When the deficit is securitized, bonds that are issued will compete with Spain's sovereign debt which has seen yields climb to 10-year highs in the last month on concerns that Spain would follow Ireland in asking for an EU/IMF-backed bailout.

The government said it aims to eliminate the deficit by 2013.

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