Blunders are killing Spanish renewables

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25 June 2013, Nuclear, Solar, Wind

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The Spanish government will not support any new renewable energy projects until further notice, and is proposing to make retrospective cuts to support for existing projects, breaking contracts it formed with investors over the last 10 years. This could result in defaulted loans, a drastically diminished renewable energy industry, and missed emissions reduction targets.

The Spanish government has failed to manage a growing deficit in its power sector that amounted to around EUR35bn at the end of 2012. This was caused by high levels of remuneration for renewable energy projects remaining unchecked in some sectors until targets had been surpassed by up to 10 times, such as in the Spanish solar photovoltaic industry. The deficit was exaggerated by forcing utilities to sell electricity to end customers at regulated rates below nominal generation and distribution costs. This was despite the National Energy Commission's Q1 2012 call for an electricity price hike to tackle the mounting deficit.

Retrospective cuts to existing contracts will result in expected returns on investment not being met and the potential default of bank loans that have supported EUR25bn (around 80%) worth of investment in the Spanish renewable energy sector. A group of renewable energy associations has reported the Spanish government to the European Commission for allegedly violating European directives, so there is a good chance that foreign investors may be protected from retrospective cuts. However, Spanish investors are less likely to be protected due to the nature of the royal decrees that govern the domestic legal changes.

The hidden costs of retrospective changes in support for renewable generation could be considerably higher than the anticipated cost savings of the changes. Defaulted domestic loans, missed emissions targets, and the need for higher levels of support to reinvigorate the renewable energy sector in the future could ultimately result in large costs to the Spanish economy. / / @DatamonitorEN

Source: MarketLine

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