Subsidy Cuts Put Spanish Renewable Energy on the Verge of Bankruptcy

A solar farm in Andalusia, Spain (Credit: Flickr @ j-b.d http://www.flickr.com/photos/jbdodane/)
A solar farm in Andalusia, Spain (Credit: Flickr @ j-b.d http://www.flickr.com/photos/jbdodane/)

The Spanish Photovoltaic Union (UNEF), an association of more than 330 solar photovoltaic companies and organizations, announced yesterday, that the Spanish government’s decision to reduce clean energy subsidies will lead to the bankruptcy of many solar energy installations, due to their inability to pay back their debts. For several years now, Spanish governments have forced electricity retailers to pay above-market prices to renewable-power producers. In 2012 clean energy subsidies in Spain hit €8.6 billion ($11.31 billion).

During the last decade Spain has become one main producers of renewable energy in Europe, by the year 2010 the country generated 23 percent of its electricity from wind and solar. That, however came at a price, as the costs of generating and distributing power have exceeded what utilities can lawfully recover from rates. The electricity system deficit has been growing since 2005, but really took off in 2008 with the financial crisis and now exceeds 25.5 billion.

Under the provisions of a new RD-L 9/13 law, Spanish government sets a new renewable energy compensation scheme in an attempt to reduce the electricity system deficit. According to UNEF, this law will cost the industry about €1.3 billion. This can lead to a bankruptcy of many solar facilities that will be unable to repay the loans that funded construction.

In its statement UNEF says that the application of new taxes will yield a profitability of 5 percent, which is far less than the interest rate on safer financial products. It may be even less, depending on the investment and operating standards set by the government, that are very difficult to adapt to the wide variety of solar facilities.