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Renewable Energy Review: Spain

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Energy Tax Hits Renewables

2012 has witnessed a series of regulatory changes that have had a serious impact on Spain’s renewable energy sector. These changes have one key goal — to control the country’s growing electricity tariff deficit, caused by an increase in regulated payments to address the mismatch in power revenues relative to generation and distribution costs. The tariff deficit reached €24b at the end of 2011 and is expected to increase by around €5b if left unchecked.

The first measure taken by the Government in 2012 was the imposition in January of a moratorium on premiums for new renewable projects that have not been registered on the ministry’s pre-allocation registry. Plants installed or under construction remain unaffected, as the decree targets new wind, solar, cogeneration or waste incineration facilities.

In March, Royal Decree-Laws 13/2012 and 20/2012 put new measures into law to cut energy costs, while in September, the much anticipated energy reform bill was presented to Parliament after receiving government approval. The reform package includes seven tax measures, the most high profile of which is a 6% flat tax on all electricity generation, including renewable energy. Other measures include a “green cent” tax on carbon-based fuels, ranging from €0.0279/m3 of natural gas to €14.97/tonne of coal, taxes on nuclear plants and a 22% levy on the use of water for electricity production.

While the measures must be debated in Parliament before being implemented, the reform package is expected to generate €2.94b for the Spanish Treasury, and ends six months of regulatory uncertainty around how Spain would address the tariff deficit. It also removes concern that renewables would incur higher tax rates than traditional power; initial drafts had indicated an 11% tax on wind and a 13% and 18% tax on solar thermal and solar PV respectively, compared with an average of just 4% on conventional energy sources.

However, there are still concerns that the renewables sector will have to take a hit from the 6% tax rate (because its retribution is set by law), while the major energy companies using traditional fuels will be able to pass the extra cost onto customers.Notwithstanding the potential immediate adverse impact on clean energy companies, the latest reform bill at least provides the sector with some sense of certainty in the short to medium term, and indicates the Government is being proactive in seeking to address the financial imbalance in its energy sector. Only time will tell the extent to which these measures successfully deal with Spain’s tariff deficit.

Despite this, Spain’s renewables sector undoubtedly continues to feel the force of attempts to bring growth under control. Solaria Energia Medio Ambiente SA, Spain’s only publicly traded solar company, has said it will begin talks to cut jobs at its factory in Puertollano, in order to “bring resources and labor costs in line with activity in the PV sector.” Similarly, Gamesa Corp. Tecnologica SA, Spain’s biggest maker of wind turbines, said it will cut 2,600 jobs as part of a business plan that will reduce its size through 2015 and return it to profit next year.

CSP Support Cut but Hope for PV

While the proposed energy bill as a whole does not discriminate against renewables, a specific provision could severely impact CSP projects, which have thus far remained relatively unscathed by subsidy cuts. An apparently inconspicuous clause in the bill indicates the removal of subsidies for CSP plants that use gas as a backup fuel, a measure that is likely to affect most plants in Spain as almost all combine solar energy with natural gas. If approved, it is potentially a significant blow to the development of new CSP plants in the country.

However, it is not all doom and gloom for the solar sector. An increasing number of projects are being planned that do not rely on FITs and seek to compete with wholesale power prices. German renewable energy developer, SAG Solarstrom announced in October its plans to build four solar projects totaling 440MW in Spain’s Extremadura region, with the output to be sold through PPAs with utilities. Earlier in the year, Wuerth Solar announced plans to develop a 278MW subsidy-free plant in the Murcia area for €277m, while Gehrlicher Solar intends to develop a €250m solar park in the Extremadura region with 250MW capacity.

For more information on renewable energy development in Spain, contact the report's authors Victor Durán and Jaime López-Pinto.

Lead image: Spain flag via Shutterstock

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