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Solar News

Solar Subsidies in Dangerous Waters in Europe: The Woes of Spain and Germany

06-22-2010

In a major blow to the solar industry in Spain, the Spanish government has decided to cut the revenue of most existing solar power plants by 30%. This decrease could bankrupt hundreds of companies that produce electricity using photovoltaic (PV) panels.

After negotiating with trade groups for several weeks, the industry ministry plans to limit the production hours it subsidizes. According to a Bloomberg Businessweek article, Tomas Diaz, director of external relations at the Photovoltaic Industry Association in Madrid, "it's incomprehensible that the government is doing this."

Solar executives, whose companies have invested more than 18 billion euros (or 22 billion U.S. dollars) in the last three years in Spain, have urged the government for weeks to maintain prices guaranteed for 25 years under a 2007 law.  If approved by the cabinet, the new legislation could mean bankruptcy for many if not most of Spain's 600 photovoltaic operators. Diaz believes, "the companies will challenge this in the courts."

The government is also cutting subsidies for PV solar plants yet to be built. For projects built in the future, ground-mounted plants will see their subsidies cut by 45%. Large rooftop solar installations face a 25% reduction, and small rooftop installations will be reduced by 5%. According to Solar Industry, these cuts do not apply to concentrating solar plants.

The Spanish government has been looking to cut renewable energy support to bring the growing tariff deficit under control. The higher cost of renewable power has been helping to increase the deficit. The Spanish cabinet is hoping that the deficit will stop building by 2013.

According to a Platts article, Diaz said that the lack of certainty over subsidies has been a disaster for the industry with new solar projects just round the corner. "Now the Spanish PV sector is a total disaster," said Diaz. "The confusion over policy has meant that not a single contract has been signed in the last two months." Despite the government's insistence on a 30% cut on existing solar power panels, it is unclear as to how it will be carried through, while concerns for the industry mount due to what the impact of the subsidy cut would have on bank financing.  "The owners of these projects are in debt to the banks. Now some banks might be left with a project that is simply not profitable," said Diaz.

Subsidy cuts for other forms of renewable power generation are also being considered by the Spanish government. These moves are considered quite ironic in a country that is currently hosting the Solar Decathlon Europe (SDE) competition.

In a parallel move, Germany is also making solar cuts. Considered the center of the global PV industry, the German PV market faces major changes in the upcoming months due to proposed revisions to the feed-in tariffs expected to be enacted by the end of 2010. The German parliamentary meditation committee was tasked with reaching a decision on proposed cuts to the country's solar incentive system, and is expected to announce their decision in early July. 

According to BusinessGreen, Parliamentary sources reveal that the first meeting of the committee failed to reach a conclusion on whether to approve the proposed cuts to feed-in tariffs for solar installations.

The disagreement was initiated earlier this month when the Bundesrat, Germany's upper house, voted against cuts to the feed-in tariff that were proposed by the government. According to Reuters Africa, the Bundestag lower house has already passed the cuts as well. Due to the impasse, the final decision is to be made by the parliamentary meditation committee.

Under the proposed cuts, feed-in tariffs for rooftop solar panels would see a reduction of 16%, while solar installation incentives on conversion sites would face cuts up to 11%, and feed-in tariff payments for new solar sites on agricultural land would be completely terminated. The government asserts that the cuts are necessary as the falling price of solar panels means the sector has become oversubsidized. However, solar panel firms have argued that the proposed cuts jeopardize Germany's status as Europe's leading solar energy market.

The subsidy cuts from both Spain and Germany could drastically affect the solar industry. Other European countries, such as Italy and the Czech Republic, are also following in a domino-like trend, with tariff revisions planned. These changes are shaping up to be significant transformations for Europe's PV industry.


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