Mariano Rajoy's pledge to tax utilities and power consumers signals Spain is planning to raise cash from renewable energy for the first time, a blow to an industry already struggling with subsidy cuts.
The prime minister told Parliament yesterday he'd impose a levy to spread the expense of closing a gap between costs and revenue in the country's electricity business, which has racked up debts of 25 billion euros ($31 billion). Details may be announced as early as tomorrow after the weekly Cabinet meeting.
Extending the treasury's net to cover wind and solar power is part of Rajoy's 65 billion-euro austerity package aimed at curbing the deficit. Fund managers from HSBC Holdings Plc (HSBA) to Deutsche Bank AG (DBK) and developers are lobbying the government to restrain the scale of the taxes, saying higher fees may tip companies into bankruptcy.
"The new taxes that are being considered are astronomical," Miguel Salis, chief executive officer of Eolia Renovables SA, a Madrid-based wind and solar farm developer. "They represent 9 percent to 20 percent of gross revenue for these plants, which would create several problems, including many solar plant defaults."
Industry Minister Jose Manuel Soria has said he'll issue an energy strategy covering nuclear and renewable power as well as the so-called tariff-deficit gap by the middle of this year. The final Cabinet meeting before the summer recess is July 27.
Shares in most Spanish companies with large clean energy interests fell today. Solaria Energia y Medio Ambiente SA was down 4.9 percent, Iberdrola SA (IBE) fell 3.5 percent and Abengoa SA (ABG) dropped 1.4 percent at 11 a.m. in Madrid.
Rajoy's remarks to Congress didn't detail which technologies would be hit hardest, leaving companies and industry lobby groups to speculate on the shape of the tax and who has the most to lose.
Spain has increased electricity prices twice this year and now is looking to spread its austerity program to cover more industries. The tariff deficit has been growing by about 3 billion euros a year, mainly because of the 7 billion euros paid in clean-energy subsidies.
"Spain has an accumulated energy debt and a current energy-tariff deficit", Peter Sweatman, head of Madrid-based consultancy Climate Strategy S.L., said in an interview. "The solutions to this unsustainable problem are a mix of increased energy prices, lower generation/connection costs and potentially fiscal measures."
Tax on Power
In December 2010, the government levied a tax of 50 euro cents a megawatt-hour on traditional energy producers. While it scaled back the number of hours in a year that renewable developers may get subsidized rates, it hasn't extended levies on power generation beyond coal, oil and natural gas. Renewables, hydroelectricity and nuclear power have been exempt.
Renewable energy lobby groups fear that an extension of this tax will be much higher for their technologies, a second blow this year after the government on Jan. 17 blocked new clean energy projects.
A group of 11 international infrastructure funds including ones managed by HSBC and Deutsche Bank wrote to ministers last week warning they'd cut investment and take legal action if the reforms are tougher on renewables than traditional energy. They said a tax would only be acceptable if it's the same for all technologies, based on megawatt hours and not revenue.
Photovoltaic and solar-thermal power plants, which earn a tariff as much as five times higher than wind, would be the worst hit by a tax on revenue. There are about 4,300 megawatts of PV capacity and almost 1,600 megawatts in solar-thermal power in Spain, official figures show.
There's about 40 billion euros of wind and solar power- related debt in Spain, most of which is owned by local banks, so an increased delinquency rate would hurt the country's financial system and country risk, according to Salis.
Alternatively, the government might increase the current 50 euro cents per megawatt-hour tax on traditional generators to 5 euros and expand it to include renewable energy, Exane BNP Paribas analysts said in a research note last month.
Such an "increase in the tax cannot be legally challenged as this tax already exists, it is an indirect tax and is non- discriminatory by technology," Exane BNP Paribas said.
Eliminating the tariff deficit may require further adjustments to the electricity system, including more increases to consumer rates and the removal of subsidies for coal.
Other countries have already raised taxes to the power industry as part of austerity measures. In August, Italy raised corporate taxes to all generators, including renewable-energy plants, by 4 percentage points for three years.
Spain's Unesa lobby group, representing traditional generators, argues that a tax that's equal for all would leave them with almost no profits and would hurt the companies that produce energy more cheaply.
Most solar plants already had their revenue cut by as much as 30 percent for the three years from December 2010 and by 10 percent indefinitely. The industry complained those measures were retroactive and is fighting them in Spanish and international courts. A similar measure targeting revenue could wipe out 75 percent of equity in Spain's renewable, according to the Unef lobby group representing photovoltaics.
A 5-euro tax for all power generators would be acceptable for the funds and the solar trade groups but not for the traditional energy producers.
"This tax, which is what we heard initially, would be logical," said Jorge Barredo, chairman of Unef. "A tax that is different for every technology seems illegal and discriminatory against renewables."