The Spanish Wind Energy Association studies legal actions against the new cuts approved by the Government

These measures eliminate the possibility of receiving the market price plus a premium, imposing  that all Spanish wind farms will have to perceive the fixed tariff as from January 1st.

Secondly, it reduces the parameters whereby the premiums are updated, which means a reduction of the incentives themselves.

Therefore, the wind sector has been left in an unsustainable position and the Asociación Empresarial Eólica (the Spanish Wind Energy Association) will study all the legal measures available.

These measures breach both the Spanish Law for the Electrical Sector as well as the decree that regulates the incentives for wind power, Royal Decree 661/2007, therefore the sector will set in motion all those legal measures within its powers in Spain and Europeanwide against them. They are also counter to the spirit of the previous regulation, Royal Decree 436/2004.

These measures come at a time when the sector is desperately endeavouring – though unsuccessfully – to open up a constructive dialogue with the Government to look at its future. The Law for the Electrical Sector clearly stipulates that the changes to the laws should first entail consultation with the actors involved as well as being viewed by the Electricity Advisory Board. More serious still, it indicates that all laws must respect the principle of reasonable profitability which these measures are clearly breaching.

The majority of Spanish wind farms (over 80%) were until now benefitting from the option of receiving the market price plus a premium, one of the possibilities of the Royal Decree 661/2007. Being forced to opt for a fixed tariff (the possibility of going to the market without a premium also exists, but it is not feasible at the current market prices and the future forecasts) means a complete overhaul of the conditions under which companies made their investments in their day, following a law which they never thought could change during the lifetime of the installations. Once again, it is in breach of legal safety and violates the principle of legitimate expectations in Spain, entailing a loss of value for the companies and disincentivising investment in the country.

Following the same train of thought, the fact that the incentives will henceforth be updated in line with underlying inflation (which does not include either energy products or unprocessed foods) at constant taxes instead of at the IPC (Spanish RPI) will actually entail a reduction in remuneration, rather than the increase the Government talks about. Back in the day when the companies made their investments in wind installation, they bore in mind the operating costs, the investment costs and the remuneration to be received during the subsequent 20 years. That’s why the updating of the remuneration receivable in a 20-year scenario is critical and, very often, key to whether the project is feasible or not.

The two measures approved today will have a joint impact of around 300 million Euros for wind companies in 2013.

The sector has already been seriously affected by measures such as the temporary 35% cut in the premium that was in force during the last two years or the new 7% tax on generation adopted last year. If, on top of all that, we now add the new retroactive measures, this will jeopardise payment of the debts of what is already a highly leveraged sector – in such a way that many wind farms would become part of the balance sheets of the banks in a similar way to that which occurred in the real estate sector – and it entails a major loss in competitiveness. It is a grave decision that will not only impact the sector, but also the whole country by placing constraints on future investment decisions owing to a breach of the principle of legitimate expectations. All in all, the sector will see its income reduced by around 600 million Euros this year, representing around 15% of its turnover.

Furthermore, in 2013 the total amount of premiums the sector would receive by respecting the current law would be around 1,950 million, according to AEE calculations, an amount very similar to that received in 2012.

The retroactive measures approved today are the final straw and they may entail the permanent dismantling of the wind industry in Spain, an industry which creates value throughout the supply chain and is a worldwide reference. Owing to the regulatory uncertainty, 40% of the jobs created by the sector in Spain have already been destroyed, a trend which is set to continue if the Government fails to sort things out.