Last decade, Spain passed a clean energy law that offered solar energy producers “58 cents for each kilowatt-hour for the next 25 years and guaranteed 80 percent of that for the years thereafter.” The rates brought small-time investors flooding into the market, and attracted big energy players to Spain as well. But the government reportedly failed to pass the true costs of solar generation onto consumers. Now, facing a $40 billion deficit in the energy sector, Spain has done away with that guaranteed rate, and drastically cut solar subsidies.
According to the government, the new measures are crucial to the state’s economic survival.
“The measures have three main objectives: grant stability to the system, guarantee reasonable returns on investment and provide certainty to the industry,” Industry Minister Jose Manuel Soria said in a press conference in Madrid today. Renewable energy subsidies had to be revised or the power system would have gone bankrupt, he said.
Soria said Spain has already paid about 56 billion euros ($76.5 billion) to clean energy generators since 1998 and will pay another 142 billion euros over their lifetimes. The subsidies, including those for co-generation, totaled 9 billion euros last year.
The retroactive measures have angered the renewable energy industry, which says the government has acted illegally and will bankrupt many projects. The Asociacion de Productores de Energias Renovables, a lobby group, in February estimated they would cut more than 2,000 million euros in revenue for generators. In April, the government’s new regulator CNMC said they would cut revenue by 1,700 million euros this year.
Acciona SA (ANA), Spain’s largest wind operator after Iberdrola SA (IBE), said the decree is retroactive and will destroy the value of the company’s renewable energy investments in Spain. The company said in an e-mail it will challenge the rules in Spain’s Supreme Court.
Hence the proliferation of claims pending against Spain before ICSID. The Energy Charter Treaty, to which Spain is a party, gives foreign investors the choice of pursuing disputes before local courts, contract-specified resolution mechanisms, or international arbitration. Most, if not all, of Spain’s solar investors are taking the third option. Meanwhile, well over a thousand small-scale investors and solar producers, including many private citizens who sunk their savings into backyard solar farms, are bringing suits in the Spanish courts. The outcome of these disputes will likely affect not only the future of renewable energy in Spain, but the wider climate of foreign investment as well.