Spanish PV industry revolts against cuts

A proposed law could retroactively cut by 30% tariffs in the Spanish photovoltaic industry - a sector that has attracted signifcant PE support - opening the door to a wave of bankruptcies.

A new law on the electricity sector making its way through the Spanish parliament has ensured that the Spanish photovoltaic (PV) industry and its funders had anything but a quiet Christmas.

Royal Decree 14/2010, as the law is known, proposes to retroactively limit the number of production hours that are eligible to receive the government’s feed-in tariff. This will effectively reduce tariffs received by PV plants by 30 percent, estimates the Asociación Empresarial Fotovoltaica (AEF), an industry body.

Such a reduction in tariffs would automatically lead many of Spain’s PV firms to file for bankruptcy and – worryingly for the banks and other investors that have backed them – would seriously impede their ability to service some €20 billion in debt provided for the sector between 2007 and 2008 alone.

This could be particularly bad news for the likes of BBVA, which is said to be the biggest lender in the sector with some $3 billion in loans granted; Santander, the second-largest lender with some $2.3 billion committed; and Caja Madrid, which has lent $1.9 billion to the sector, according to data from New Energy Finance, a consultancy.

According to Juan Laso, the head of AEF, a cut of 10.4 percent in the current feed-in tariffs would lead many PV plants to default on their debt payments. If the new law gets ratified by parliament and a tariff reduction of 30 percent is implemented, “the vast majority of the 60,000 small PV investors operating in the market would automatically default,” highlights Jose Luis Martinez, AEF’s vice-president. There are currently some 80,000 firms operating in the Spanish PV sector.

The new law intends to implement the most stringent cuts to production hours between 2011 and 2013, limiting the number of hours eligible to receive the feed-in tariff to 1,707 annual hours. As a reference, Spanish PV plants have been getting tariffs for between 2,100 and 2,500 annual production hours, with no constraints to production under the current law.

From 2013 onwards, limits to production hours would be implemented by geography and are generally seen to be less stringent. If approved, Royal Decree 14/2010 will join decree 1565/2010, approved late last November, which already reduces the payment period for all PV tariffs (past and future) to 25 years. That law also cut feed-in tariffs for new plants by up to 45 percent.

The Spanish PV sector has become a victim of its own remarkable success, as Spain rocketed to the top of the world’s solar power producers. Its success has happened on the back of generous government subsidies that, in 2009, amounted to €2.7 billion of PV tariffs, accounting for some 43 percent of all subsidies paid to the renewables industry.

Industry bodies like AEF have vowed to fight the new law all the way to the European Court of Justice, if it gets approved.