The Bulgarian Government is set to face numerous lawsuits from investors in solar power plants as it imposes electricity grid fees on existing solar power plants to reduce their returns. This will reduce the returns for solar investors by 20-40% and bring down the electricity rates for Europe’s poorest citizens who saw rates go up by 12%. Note Bulgaria had given a very generous solar feed in tariff which has attracted solar developers and companies in droves setting up large solar power plants. The returns were enormous for these investors as solar panel prices have crashed leading to IRR of 30-40%. This has imposed a heavy monetary burden on the Bulgarian government and electricity companies as they are forced to pay for this boom. This story is similar to what was scripted in Czech and Spain a couple of years ago. The story goes like this:
a) Government starts a solar subsidy program by giving above market rates for solar electricity
b) Solar systems prices go down making the FIT very lucrative
c) Massive solar boom ensures with solar developers setting up huge capacities in short period of time (Czech saw 1 GW of solar installed making it the 4th largest solar market)
d) Burden becomes huge in the government leading to increasing rates for customers
e) Government clamps down and imposes taxes and fees on existing solar power plants
f) Investors cry wolf and sue the government.
The Spanish Government faces multiple lawsuits over its Royal Decrees which cut the Feed in Tariff for Solar PV Installations Retroactively. These laws were passed in Dec 2010 as part of the comprehensive review of the Renewable Energy Subsidies by the Government. While Wind Energy and Solar Thermal Subsidies were changed earlier, the controversy over the Solar PV subsidies had forced the government to delay the change to the last minute. These changes were strongly opposed by the Solar PV Industry Association ASIF which has earlier called the measure as “industry killing”. These cuts over the next 3 years would be done through a “backdoor approach” in which the subsidies would be restricted for a only a few hours for the Solar PV plants.
Note this measure has generated a massive amount of heat with some pension fund investors threatening to abandon Spanish government debt. While lawsuit threats were also given, the Spanish Government (facing huge problem on the fiscal front as its bond yields increasing) change the FIT law adversely for Solar PV investors. This has led to huge problems for the investors and the banks financing these investors.
Czech Republic has designed the worst Feed in Tariff Subsidy Scheme for Solar Energy in the World. The FIT which boosted the returns for green investors to about 40% or more per year has led to a massive boom in solar installations. This has made the Government sit up and decide to sharply cut the Green Subsidies being given to Solar Plants. While FIT will be cut by 50% next year for new solar installations, the Government also plans to rein in the super normal profits being enjoyed by investors in solar plants. The Government is planning a number of measures to increase the payback period of solar investment to 15 years as was planned earlier and which was reduced to 2-4 years now. The measures that are being planned are:
1) Tax on Solar Subsidies - The Czech Government which used to give a tax holiday to solar energy revenues will be withdrawn and a new tax rate will be introduced.
2) No more Free Carbon Credits - The administration will generate revenue through selling the carbon credits rather than giving it free to Renewable Energy Producers. This will remove another source of return for solar investors.
3) Rent for Power Plants on Agricultural Lands - The Government also plans to impose a Fee on Solar Power Plants that are built on Agricultural Lands.
Dozens of Austrian, German, Japanese, Chinese, South Korean and U.S. companies have rushed to take advantage of sun and wind power potential in Bulgaria, which also offered lucrative incentives for green energy.
But growth in installations has outpaced forecasts, putting pressure on the ageing power grid and electricity prices in the EU’s poorest member state, which has been trying to cool down demand for green energy installations since last year.
The total installed capacity of photovoltaic parks in Bulgaria soared to more than 700 MW by the end of August, a huge gain from the 134 MW in operation at the end of 2011, industry officials said.
The surge of solar parks, however, has pushed consumer prices up 13 percent in 2012 as the government seeks to recoup the cost of the subsidies.