Italy to cut Subsidies on Solar power plant

Spain and Czech faced massive fiscal pressure on their treasuries after their government’s legislated large subsidies for solar power energy. The bureaucrats set up a bad subsidy policy, which resulted in windfall profits for developers as they procured solar panels at cheap prices from Chinese producers. The prices of solar equipment went down very quickly, while the government was too slow in making changes to the solar subsidies. This created a large boom in the solar sectors as investors, developers rushed in to take advantage of the above normal profits created in the industry.

Italy was no different, as it saw solar installation grow massively in 2010 and 2011 as Conto Energia made installing solar power plants very lucrative. Even the mafia got involved in this industry of putting up power plants. The high level of electricity tariffs paid by the government for generating solar electricity resulted in returns of 20-30% every year. Though Italy has almost stopped giving new subsidies for solar power plants, it is still under obligation to give billions of euros in subsidies for the old power plants for 20-25 years.

The government which is facing huge pressure on its finances and has one of the highest electricity rates in the world, is now thinking of retroactively reducing the rates by 10%. As usual, the financial investors and funds are crying wolf and planning litigation to stop these changes. Though, retroactive changes are never good for investors as all of them might be not making the 20-30%, the government has to do something. These subsidies are paid out of the electricity consumer’s pockets to the investors. A decent rate of return is understandable, but the enormous returns these funds are getting is not acceptable. Robbing poor Peter to pay rich Paul makes no sense. This is what is happening in Italy right now. It will be a good thing to cut the subsidies to the large power plants of above 200 Kw size. These plants were mostly built by large investors and not individual citizens. There may be some people who will get hurt and the right wind capitalists will criticize the change, but making poor people continue to suffer from extremely high electricity bills due to the stupidity of the government is also not justified.