Spain may use a backdoor approach in cutting Solar Subsidy to rein in Renewable Energy Costs

19 Jun, 2010 by Sneha Shah

Background on Spanish Government’s proposal to cut Solar Subsidy on Existing Plants

The Spanish government has been actively discussing with industry groups on how to reduce its Green Energy subsidies as the country faces a critical budgeting and funding problem.The impact of an “industry killing” 30% cut to existing solar plants would be quite devastating on the Renewable Energy Industry in Spain.It would lead to litigation at both Spain and EU courts as investors had invested in Solar Plants with the assurance of a 25 year guaranteed payment.This would also severely impact the credibility of the Government if it goes back on its promises to international investors based on fine legalese.However the Sovereign debt and banking sector problems of Spain is becoming quite acute.There are rumors being floated about a Euro 250 Billion Bailout to be orchestrated by the EU and the IMF.In such a situation Spain has to cut government flab in all possible directions.Renewable Energy is an easy target as Global Warming has been put in Cold Storage by world governments focused more on the short term GFC rather than the far off but bigger problem of Climate Change.

Backdoor Approach to Cutting Solar Subsidy through Reduced Operating Hours

The new Spanish proposal to cut the operating hours for which solar plants can receives the Feed in Tariff is a way to circumvent the outright cut in subsidy.This might help the government avoid some of the legal problems that it will inevitably face if the proposal becomes law.However,the result for the owner of a solar plant is similar.The returns on his investment which was guaranteed by the government ( though some might called that foolish) will be reduced in the same way if there was a 30% outright cut.This backdoor approach will not in any way solve the problems of the Government and the Solar Plant investors.

Spain May Cut Income 30% for Operating Solar Plants – Bloomberg

Spain’s government will cut the revenue of most existing solar-power plants by 30 percent, a move that may bankrupt hundreds of companies that produce electricity using photovoltaic panels, a local trade group said.

The industry ministry, after negotiating with trade groups for weeks, plans to reduce the number of hours a day during which they may earn subsidized prices for clean energy, said Tomas Diaz, director of external relations at the Photovoltaic Industry Association in Madrid.“It’s incomprehensible that the government is doing this,” Diaz said in a telephone interview after solar industry representatives met today with Deputy Industry Minister Pedro Marin. “We feel cheated.”

Solar executives, whose companies have invested more than 18 billion euros ($22 billion) in the last three years in Spain, have pressed the government for weeks to maintain prices guaranteed for 25 years under a 2007 law. The decision, which hasn’t been approved by the cabinet, would mean bankruptcy for most of Spain’s 600 photovoltaic operators, Diaz said.A spokesman for the industry ministry who asked not to be identified by name declined to comment. The ministry has yet to make public its proposed reductions.“The companies will challenge this in the courts,” Diaz said.

Impact of Spain’s proposal to retroactively implement an “Industry Killing” 30% Solar Subsidy Cut on Existing Solar Plants

17 Jun, 2010 by Sneha Shah

Renewable Energy,Solar Energy

According to the Spanish Solar Power Lobby ASIF,the Spanish government (under Pressure with Spanish Banks facing Funding Problems and Spanish Bond Yields Rising) is proposing a cut of 30% in “guaranteed subsidies” to existing solar plants . Under the Feed in Tariff (FIT) scheme implemented by countries to promote renewable energy,power producers are guaranteed a higher rate than the standard electricity tariff to compensate for the highest cost of Renewable Energy. Spain saw a massive boom in 2008,when the FIT rates became very attractive leading to high returns for investors in solar plants.This led to a burst in 2009 as Spain clamped down hard on the Subsidy program drastically reducing the subsidy and slowing down the process of approval.

What will be the Result of this Solar Subsidy Cut

“This (proposal) would destroy the government’s renewable-friendly policy and kill us all off,” Diaz said after solar lobby groups met with Spain’s Secretary of State for Energy Pedro Marin.

If the current proposal passes,then the government is sure to see a a loft of Litigation as most investors had put in money with the assumption that the FIT rate received by them was fixed for a tenure of 25 years.
It will also seriously Undermine the confidence of Renewable Energy investors in the Spain leading to a virtual halt in Renewable Energy Investments .The FIT scheme is used to guarantee a stable policy regime which allows private capital to make long term investments in Renewable Energy.With the very basis of the FIT policy being overturned by the government,Private Capital will abandon the sector wholesale
It will result in Huge losses for Solar Plant Operators with large exposure to the Spanish solar power sector.Spanish renewable energy company T-Solar has already been forced to delay its IPO.Publicly listed Spanish companies like Iberdola Renovables,Accionia and Abengoa have also seen a sharp fall in their stock prices
Might be a big setback to Solar Investing Globally – This will not only impact Spain but also cause a huge setback to private investments in other countries as investors start questioning the government commitment to Renewable Energy everywhere

Summary

The Spanish government has not officially revealed the changes in its Renewable Energy policy but if the proposal in its current form is implemented then it will have negatively impact on the Spanish Solar sector.The spokesperson for the industry lobby is not exaggerating when he says that it will kill the industry.It has the potential to slowdown the whole European Solar sector as private and bank funding may evaporate due to the increased regulatory risk.If the retroactive subsidy cut was not bad enough,the 25-45% cut on future solar plants is big enough to make the Spanish solar sector a dead one anyway.

Spain wants sharp subsidy cut for solar plants – Reuters

The Spanish government is proposing sharp cuts in subsidies for solar plants, which could hurt both domestic and international solar companies operating in the country, industry lobbyists said on Wednesday.Spain wants to cut existing solar panel plants’ subsidies by 30 percent and future ones by 45 percent for big floor-mounted units and 25 percent for smaller roof mounted ones, Spanish solar power lobby ASIF spokesman Tomas Diaz said.

“This (proposal) would destroy the government’s renewables-friendly policy and kill us all off,” Diaz said after solar lobby groups met with Spain’s Secretary of State for Energy Pedro Marin.”We don’t think the sector can survive if it accepts these proposals,” Diaz said.

An Industry Ministry spokesman declined to comment on the proposed subsidy cuts.

Will China ever pass a Feed in Tariff Law for Solar Energy?

25 May, 2010 by Sneha Shah

China,Solar Energy

China has been rumored for a long time to mandate a law to provide for a higher electricity rates for renewable energy production (Feed in Tariff) . First Solar the largest solar company in the world had signed an agreement with the Chinese government for setting up a gargantuan 2 GW plant in Mongolia based on the promise that the Chinese govt would set up a FIT for solar energy.However China has been procrastinating on this issue since a long time . First Solar recently hinted that it might not set up a manufacturing plant in China project because delays in deciding the FIT.This could be a pressure tactic by First Solar to push for some sort of FIT .China desperately needs clean technology while US firms need market access to the huge Chinese market.

China has a target of generating 15% of its energy from renewable forms by 2020 from the single digit percentage now.Most of the power in China is generated through the dirtiest form of energy – coal.The environmental norms are very weak resulting in huge pollution problems in China.Besides this the problems of global warming and “peak resources’ makes it essential for China to move faster with regards to Clean Technology.In Wind China has become the 2nd largest market in 2009 leading to an oversupply situation.However in Solar , China is not even in the top 10 countries . In my opinion the reason for the not enacting a FIT could be

1) The high price of solar energy which is more expensive than Coal,Gas,Oil,Wind and Nuclear Energy.

2) The prospect of paying out billions in dollars of subsides like Germany.The massive subsidies has forced the German govt to sharply cut off the FIT rates mid year.This has also led to huge financing problems in Czech and Spain.Perhaps the Chinese govt wants to avoid such problems

3) Waiting for the solar energy prices to go even lower ( there has been a 30-40% decrease in solar costs over the last 2 years)

4) China has awarded a number of large solar projects through the bidding mechanism.Perhaps the authorities there feel it is cheaper and more efficient to boost renewable energy through this approach rather than Feed in Tariffs

Czech Solar Feed in Tariff (FIT) Story of 2010 follows the Spanish Crash of 2009 closely

7 May, 2010 by Sneha Shah

Germany,Renewable Energy,Solar Energy

We all know what happened in Spain in 2008.Due to extremely generous feed in tariffs for solar , installers went on a spree installing 2.5 GW of solar in 6 months compared to the world’s global capacity till date of less than 20 GW . This led to a sharp revision and crash of the Spanish solar industry in 2009.Czech which could have learned something from the Spanish tale did nothing of that sort. Their FIT also led to lavish returns for all developers of solar power leading to 400 MW being installed in 2009.Compared to the small size of their grid that was a lot and led the grid operators to make deadly warnings that the grid would crash.The Czech politicians like the Spanish ones woke up late in 2010 and have decided on changing the law in 2010 . Many proposals are being floated on how to change the rate. A 25% cut in 2011 is being considered while 2010 will be a merry time for all solar developers .There have been more European mistakes regarding FIT in the past where over generous FITs have led to a market freeze or a severe bust following a boom.Greece comes readily to mind.

Solar price may drop 25 percent – Prague Post

In an attempt to get hold of what could be a runaway solar subsidy market, the Senate approved an amendment April 21 that will allow the Energy Regulatory Office (ERÚ) to lower solar energy prices well below the current annual limit of 5 percent cuts.

At the start of 2011, the state will now be able to decrease solar energy prices up to 25 percent – if President Klaus signs the amendment into law. Even with a quarter cut, the government’s subsidies for feed-in tariffs remain so high that solar energy remains an attractive investment.

“It’s almost certain the government will use the full amount [to cut tariffs] allowed by the bill. Even if the tariff is cut 25 percent from the current amount, under the current exchange rate, the tariff will still be slightly higher than Germany’s in 2009,” said Martin Šimonek, CEE solar analyst at Bloomberg New Energy Finance.

The government would even do well to cut subsidies even more, but politicians must balance keeping good faith with foreign investors with what they can afford to do, he added. Across the EU, countries that offer feed-in tariffs to private investors are dealing with a flood of speculative license applications and mounting subsidy bills that states can barely afford. In Spain, there are even rumors the beleaguered country may have to retroactively reduce rates for existing solar plants, a move that would be devastating for investor confidence.

“It would have a really negative affect on the fiscal policy of the country and set a terrible example,” Šimonek said. “I know that, when the Czech Republic was considering revising tariffs … research found the costs of legal disputes would be greater than any savings from readjusted tariffs.”

Feed-in tariffs were passed in 2005 to attract investors to the growing renewable energy sector and to help the Czech Republic meet the EU requirement that 20 percent of the nation’s power come from renewable sources before 2020. The feed-in tariffs for plants built that year locked in solar energy prices between 12,790 K? and 12,890 K? per megawatt hour until 2025, while obligating ?EPS, the Czech electricity grid manager, to purchase all solar energy produced.

While the cost of producing solar energy falls 10 percent annually, according to the ERÚ, the feed-in tariffs had previously been limited to price drops of 5 percent per year.

Net Energy Demand For Australian Utilities Could be Zero in a Decade

15 Sep, 2017 by Sneha Shah

Australia,Rooftop Solar

Rooftop Solar Continues To Grow Exponentially In Australia

Due to high energy prices and low solar energy prices, Australia has become one of the best places to install rooftop solar energy systems and already 6 GW of solar capacity has been installed in the country.

Australia is unique in the solar industry as it is perhaps the only country where a majority of the solar energy capacity has come from distributed energy resources rather than the large solar farms seen in the rest of the world. A combination of feed in tariffs, highly favorable economics, and abundant rooftops have allowed Australians to put rooftop solar like there is no tomorrow. Already more than 20% of Australian households are using solar energy and this trend is set to keep on increasing.

The total rooftop solar energy capacity installed in August 2017 was almost 100 MW which is an increase of 47% from last year. Though there are headwinds from reduced FIT by Australian governments, the economics are so favorable that people continue to installing solar energy in increasing numbers. Now with the increased penetration of storage, rooftop solar is becoming an ever more compelling proposition for homeowners.

Also, read Sonnen’s “Flat Price Electricity” Further Disrupts Electricity Market In Australia

SunWiz, an organization that tracks solar industry activity, has reported an 84 per cent leap in South Australian businesses investing in solar generation. Managing director Warwick Johnston said installation was at record levels across Australia.”Every area is going gangbusters at the moment,” he said.

Source: ABC.au

One resulting impact has been that the demand for utility energy is decreasing sharply during the middle of the day due to the famous “duck curve”. As rooftop solar energy systems generate the maximum power during the middle of the day, the demand for power decrease during that time and then increase during the evening. In South Australia, rooftop solar accounted for 36% of the demand during the afternoon and this is set to keep on increasing with rooftop solar to account for almost 100% of the demand during daylight hours after a decade. The implications are that utilities will have to find other sources of revenue to compensate for the falling demand while the transmission and distribution operators will have to invest in balancing and flexible infrastructure to ensure that the fluctuating demand is met.

AEMO has predicted that by 2019, record low demand may fall to just 354MW, and within 10 years the grid demand may fall to zero because of the increasing amount of rooftop solar, particularly as South Australia has high grid prices, due to its historic legacy of an elongated network and the lack of competition in wholesale market.

Source: Reneweconomy.au

The Rise of the Yieldcos

31 Jul, 2014 by Sneha Shah

Solar Energy

Yieldcos

TerraForm, the yieldco formed by spinning of the solar assets of SunEdison (SUNE) has seen a tremendous response to its IPO. The company raised more money at a higher price as investors have made a beeline to buy the stock of this company. Yieldcos are a new financing vehicle for solar farms, which have been popularized by NRG Energy who started this trend. Many companies which have large solar assets are thinking of starting such a vehicle.

Solar farms have given good yields over a long period of time, which make them an attractive asset class. Large investors like Warren have already bought massive solar farms to take advantage earlier. As solar energy has matured, it has become easier to finance the solar generating assets. These plants have a predictable life with predictable energy production and revenue generation. The yieldcos are more attractive, as they have a mix of assets which lowers the total risk than in buying a farm.

Note, while the yieldcos have a good yield compared to the low interest rates being offered by bonds in the USA and other developed countries, they are not entirely without risk. The solar assets not only face operational risk, they also face geopolitical and political risks. Spain and Italy have imposed retroactive taxes which have sharply lowered the FIT given to these plants. Czech too has done the same thing. Crimea’s solar plants are in a political limbo after they were annexed by Russia. It is doubtful if the new government will honor the feed in tariffs contracted over long duration to the owners of these solar power plants.

Though risks remain, yieldcos are a win-win product for both the investors and the operators. They lower the cost of capital which makes solar energy cheaper, which will lead to more farms and more yieldcos. Investors not only get a higher yield compared to normal gas or coal assets, but they also get to invest in a green venture. Yieldcos are becoming more and more popular as an asset class and I think they will compete with REITs in popularity in the future.

New York Times

TerraForm Power, an arm of the solar power company SunEdison that operates over 200 solar power projects in the Americas, said on Thursday that it had priced its initial public offering at $25 a share, the top end of an already raised price range.That meant that TerraForm raised about $500 million from the offering, as well as $65 million from two additional private stock sales conducted at the I.P.O. price.

At the offering price, the solar power project company was valued at about $2.4 billion.Such entities have been welcomed by public investors. One of the first in the most recent batch, NRG Yield, has risen almost 85 percent since making its market debut last summer.In light of that, underwriters this month raised the top end of TerraForm’s price range to $25 a share, from $21.

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