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Spain cuts solar power subsidies by 30 percent, industry association vows fight

Spain’s cabinet of ministers today approved a three-year, 30 percent cut to solar power subsidies, a move that potentially could save the government €740 million but has also led to widespread anger among investors in the sector, according to published reports.

In a written statement following announcement of the decision, Spain’s Photovoltaic Business Association (La Asociación Empresarial Fotovoltaica) described the move as a “clear attack on the solar photovoltaic industry and the economy and sustainable energy policy”.

For AEF, the statement continued, “the measures announced are clearly retroactive, have been issued without regard or industry, or investors or banks, and lead inexorably to a bankruptcy of the vast majority of Spanish PV.”

The reduction in subsidies is expected to affect a wide range of solar power projects, and is in line with the contention of some Spanish officials that the industry has grown much faster than the government anticipated in its long-term planning.

But Deputy Industry Minister Pedro Marin was quoted in The Wall Street Journal and other publications this morning as saying he expects the sector to remain profitable despite the reduction and subsidies and that today’s action will provide the government with more leeway in terms of controlling energy prices charged to consumers.

In addition to trimming subsidies, the package freezes electricity prices for at least five million Spanish families. It has been estimated that the change in policy will lower consumer energy bills by as much as €4.6 billion through 2013.

According to most estimates, solar capacity in Spain has climbed to more than 3,200 MW in recent years, six times what government officials expected by the end of 2010.

As a result, the deficit, or the shortfall between what power companies are allowed to charge consumers and the revenue guaranteed to them by the government, has spiralled in recent years. The situation resulted in a €15 billion tariff deficit to electricity producers that the government is pay back by issuing debt.

But angry investors have warned that the reduction of the subsidies may now trigger a wave of loan defaults by companies in the sector.

Francesco D’Avack, a Solar Analyst for Bloomberg New Energy Finance, said in the publication today that the reduction in subsidies is “a massive blow against the Spanish photovoltaic industry and anyone who invested in the boom”.

“This decision could undermine investor confidence in any renewable assets backed by government contracts,” he said.

Meanwhile Juan Laso, president of La Asociación Empresarial Fotovoltaica, has told the Financial Times of London that the decision to cut subsidies “implies bankruptcy” for many in the nation’s solar sector.

On its Web site, the association lamented that its “worst fears have been met” and that the reduction in subsidies is “discriminatory against PV”.

"[This] cutting is not balanced with respect to other technologies, both conventional and renewable, and even it is between regions, and imposing a limit of one hour regardless of different communities and different solar radiation, the technological characteristics and business plans investment,” the association said.

“These measures will generate retroactive costs ten times more -- for their impact on international markets and debt of the Kingdom of Spain -- that the supposed savings from them, as expressed by some leaders of foreign investment and national and international banking,” it continued.

The organization said it has made an “urgent appeal” to Spain’s Congress of Deputies, with the hope that the legislature can “correct the blunder and the imbalance posed by the Ministry of Industry with a Royal Decree-Law which offers significant technical and legal gaps”.

For additional information:

La Asociación Empresarial Fotovoltaica

The Financial Times

The Wall Street Journal

Bloomberg News

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