UPDATE 1-Spain says ends subsidies for new renewable units

Fri Jan 27, 2012 9:27am EST

* Plants installed or under construction not affected

* Tariff deficit 24 billion euros end-2011

* Renewables provide 33 pct electricity demand (Adds quotes, details, background)

By Andrés González

MADRID, Jan 27 (Reuters) - Spain has decreed an end to subsidies for new generating plants running on renewable energy sources to prevent billions of euros in debts held by utilities from escalating, Industry Minister Jose Manuel Soria said on Friday.

Speaking after a weekly cabinet meeting, Soria said the decree would be temporary and not prevent eurozone struggler Spain from meeting European Union targets for renewables, which currently provide one-third of the country's electricity.

"First and foremost there is an unequivocal goal through the government to reduce the deficit and no policy area is apart from that," Soria said, adding the move would not affect subsidies for plants already installed or under construction.

Spain's incoming centre-right government has set an ambitious target of cutting back its budget deficit to 4.4 percent of gross domestic product in 2012 from an estimated 8 percent last year to convince investors its public finances are sustainable.

Soria estimated the debt accrued by utilities for selling electricity at regulated rates - dubbed the "tariff deficit" - stood at 24 billion euros ($32 billion) at the end of 2011.

Of 7.22 billion euros in subsidies earmarked for electricity production in 2012, he added, 71 percent would go to renewables.

"The biggest problem is the rate at which the deficit will grow in coming years. If we do nothing, it'll be 3-4 billion euros a year, so what is an energy problem could become a financial problem," Soria said.

Instead of passing on the tariff deficit to consumers, Spain has obliged utilities to hold it on their balance sheets as state-backed debt.

The consumer will in principle repay the debt through gradual hikes in electricity bills, but successive governments have baulked at burdening people and businesses during the worst economic crisis in decades.

Soria said Spain would have no problems supplying power because it already had enough generators to produce some 106,000 megawatts, or more than twice peak demand of 38,000 MW.

In a bid to cut greenhouse gas emissions and its hefty dependence on energy imports, Spain has become a leading producer of energy from renewable sources like wind and solar.

Spanish utility Iberdrola has 13,500 MW of wind generators installed around the world, while renewable firm Abengoa is building what will be some of the world's biggest thermosolar plants in California.

Hardest hit will be small producers, particularly of photovoltaic solar panels, who say they need support to maintain sorely needed jobs and prevent Spain becoming more dependent on equipment made in China. ($1 = 0.7601 euros) (Writing by Martin Roberts; editing by James Jukwey)