By Ben Sills
April 30 -- Spain is lancing an 18 billion-euro ($24 billion) investment bubble in solar energy that has boosted public liabilities, choking off new projects as it works to cut power prices and insulate itself from Greece’s debt crisis. Industry Minister Miguel Sebastian is negotiating reductions in subsidies for solar plants that would curb energy costs, a ministry spokesman said this week. Grupo T-Solar Global SA, the world’s biggest photovoltaic plant owner, shelved its Spanish stock offering three days ago. Solar Opportunities SL postponed a 130 million-euro deal due to be signed today.
“They’ve put the fear of god into all these investors,” said Paul Turney, chief executive officer of Madrid-based Solar Opportunities. “By the time they’ve finished dithering around, they’ll have hurt their credibility so badly that no one will want to invest.”
Spain is battling on several fronts to revive its economy and convince government bondholders it can avoid getting dragged into a Greek-style debt spiral after Standard & Poor’s cut its credit rating April 28. Solar-plant owners including General Electric Co. earn about 12 times what’s paid for power from fossil fuels. Most of that is a subsidy charged to customers.
Prime Minister Jose Luis Rodriguez Zapatero’s government last cut solar rates in 2008, hitting plants not built at the time. Now it’s weighing reductions for the thousands of installations already making power from the sun, wind and biomass.
‘Excessive Subsidy’
“This is necessary,” said Leon Benelbas, chairman of Atlas Capital Close Brothers investment bank in Madrid. “It’s an excessive subsidy at a time Spain has to gain competitiveness, and the cost of energy is a determining factor.”
Spain’s fixed-price system for renewable power, which attracted more investment in solar panels in 2008 than the rest of the world put together, boosts the state’s liabilities even though they don’t show up on its balance sheet.
That’s because the Spanish system delays payments by consumers for part of their electric bills for years. The government guarantees repayment to power suppliers such as Endesa SA and Gas Natural SDG SA. The cost of those unpaid bills rose last year by about 4 billion euros to 16 billion euros.
Spain intends to revise the clean-energy rates down “to avoid damaging the competitiveness of industry,” Sebastian told the Spanish parliament yesterday.
Ratings Cut
S&P cut its rating on Spanish debt to AA on April 28, saying the nation that was AAA-rated until January 2009 is underestimating its fiscal problems and overestimating its ability to grow.
Government officials, who spurred more than 18 billion euros in solar-power projects since 2008, are meeting with industry representatives to negotiate cuts to subsidized rates.
“We had a gold rush here,” said Turney who, based on current power rates, planned to invest 240 million euros of equity into Spanish solar plants by next year. “They were building plant like crazy.”
Instead, the Solar Opportunities executive postponed a deal with 30 million euros in equity and 100 million euros of debt that was set to be signed today. He said he may cancel other projects too.
Groups such as the Spanish Photovoltaic Industry Association say they’re willing to accept cuts for future plants. They argue that reducing the price for existing facilities will breach their agreements with the government and damage the country’s reputation with investors.
‘Sensible Government’
“No sensible government is going to do this,” Juan Domingo Ortega, co-owner of Renovalia Energy SA, said at an April 23 outlining the company’s plan to raise 153 million euros in a stock offering. Renovalia is set to begin trading May 12.
Shares of solar producer Abengoa SA lost 8.9 percent this week. Solaria Energia y Medio Ambiente SA dropped 8.8 percent.
Forcing solar investors to take a haircut increases the risk of doing business with the Spanish government and may damage its ability to sell bonds, said Juan Laso, chief executive officer of T-Solar.
“The consequences of this are enormous, not just for the companies and financial institutions that have invested their money, but for the credibility of the country,” Laso said.
Investors began questioning the strength of Spanish assets as the shockwaves from Greece’s financial meltdown spill across Europe. The extra yield investors demand to hold Spanish 10-year government bonds reached 113 basis points this week, the widest spread in more than a year as the scale of the bail-out needed by Greece ballooned.
Legal Argument
The legal dispute on Spanish solar rates turns on a reading of the 2007 law that governs renewable-power production. The government says it gives it the right to revise prices for existing plants this year. Executives say their prices are guaranteed for 25 years.
“In renewable energy, often government incentive programs are a key factor in our decision,” said Andrew Katell, a spokesman for GE Energy Financial Services. “We would take the same approach in Spain.”
GE Capital’s energy investment unit has 32 percent of Fotowatio Renewable Futures, which owns 90 megawatts of solar generating capacity in Spain.
“Those who thought it was a government guarantee hadn’t done their homework,” said Benelbas of Atlas Capital. He said investors will welcome the price cuts because it curbs the state’s financial exposure. “It’s all connected.”
Source: http://www.bloomberg.com/apps/news?sid=aKBPkdonLv3U&pid=20601087
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