Spain is preparing a new cut in subsidies for renewable-energy production, a move that could drive struggling solar energy companies into default at a time of deepening recession and boost loan losses for banks that financed their projects, according to people familiar with the plan.
Spain
is
preparing a new cut in subsidies for renewable-energy production, a move that
could drive struggling solar energy companies into default at a time of
deepening recession and boost loan losses for banks that financed their
projects, according to people familiar with the plan.
Under a broader energy sector overhaul to be announced as early as June 21, the
government will reduce subsidies to renewable energy producers by 10% to 20%,
these people said.
A spokeswoman for the Energy Ministry, which proposed the reduction, declined
to comment.
Spain
's
renewable energy sector includes wind and solar energy projects. The proposed
cuts are a far bigger threat to solar energy investors because their projects
are more heavily indebted.
Deputy Energy Minister Alberto Nadal told representatives of Spanish and
foreign banks late last month the government was planning the cuts to help to
reduce the "tariff deficit" that results when the electricity system
brings in less revenue than it costs, according to people briefed on the
meeting.
The electricity system has registered deficits during most of the past decade. By
May the total accumulated deficit had reached about 26 billion euros ($34
billion). The government has promised to narrow the gap this year as it
struggles to bring down its budget deficit and limit the rise of consumers'
light bills.
Spain
began
offering large subsidies and other incentives in the late 2000s to promote the
growth of solar-energy projects. Spanish banks and some foreign banks loaned
the renewable energy companies an estimated EUR30 billion.
The amount of solar power capacity installed in
Spain
far
surpassed official government targets, raising the tariff deficit.
Since 2010, the government has taken steps to curb the tariff deficit,
including a temporary limit on the hours of electricity generation for which
most solar energy producers can receive payment above market rates.
These producers say the limits adopted since 2010 could cut their revenue by as
much as 40% this year.
Jose Donoso, managing director of the Spanish Photovoltaic Union trade
association, said the subsidy cuts would also lead to a wave of defaults in the
renewable-energy sector because companies managing many of the 60,000 or so
solar-power installations in
Spain
would
have trouble servicing their debt loads. He said he couldn't estimate how many
were at risk of default.
Spanish banks could refinance some of those loans, but they are already facing
a rising tide of corporate defaults in other industries. Earlier this year the
Bank of Spain, the country's central bank, told lenders they must set aside
EUR5 billion to EUR10 billion to cover potential losses on corporate loans that
had already been refinanced. The new provisions come on top of an EUR82 billion
cleanup of the banking industry's real estate portfolios last year.
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