-----

Resources



Market News

 January 30, 2012
Debt crisis forces Spain to halt green energy subsidy scheme

 Spain has been forced to put its green energy subsidy scheme on ice in response to its continuing debt crisis, insisting the move will not derail efforts to meet ambitious EU renewable energy targets.

The government's Council of Ministers on Friday approved a plan to suspend payments to new renewable energy plants with immediate effect, because the scheme had already accrued debts of €24bn (£20bn) by the end of 2011.

The suspension will affect all renewable energy technologies that have not yet registered for the subsidy scheme, including wind, solar, biogas, small hydro, and energy from waste plants. However, operating plants or projects that have already been approved for subsidies will not be hit by the change.

Industry Minister Jose Manuel Soria told reporters on Friday that the suspension would not obstruct the country's efforts to meet its EU renewable energy target, maintaining that the government's priority this year was to reduce its budget deficit to 4.4 per cent of gross domestic product, compared to an estimated eight per cent last year.

"First and foremost there is an unequivocal goal through the government to reduce the deficit and no policy area is apart from that," he said.

Soria said green energy already provides one-third of Spain's electricity demand, and the country has a target for renewables to account for 20 per cent of overall energy consumption by 2020.

The government had been reluctant to pass on the costs of the subsidy in the form of higher energy bills to consumers that are already facing stretched household budgets. Instead it had asked utilities to account for the scheme on their balance sheets as state-backed debt. However, the popularity of the scheme led to a surge in the level of debt being taken on by the government.

Some analysts predicted the move could undermine Spain's expanding green energy industry, with smaller players that rely on the subsidies likely to find adjusting to the new regime particularly difficult.

However, Sean McLoughlin, a renewable energy analyst at HSBC told Bloomberg that the move should be welcomed by developers because it removes the risk that the government could impose retrospective changes to the scheme later down the line.

The news emerged as Germany's government failed to agree at a meeting last week on how to overhaul its own clean-energy subsidy system -- a move that is expected to spark a rush of installations.

Economy Minister Philipp Roesler had called for a cap of 1GW a year on new solar installations, while Environment Minister Norbert Roettgen wanted to continue to allow 2.5GW-3.5GW of new installations, but bring forward planned cuts to subsidies to April 1.

However, Roesler's proposal did not win a unanimous vote, so the meeting ended without a result.