RPT-Fitch: EMEA Utilities Can Cope with Sharp Cut in Spanish Renewables Subsidies

Tue Jun 17, 2014 3:56am EDT

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June 17 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings says renewable energy projects in Spain face a substantial reduction in cash flows, following the publication of a new remuneration mechanism for renewables, cogeneration and waste in the Royal Decree last week. However, the agency views the cash-flow impact as manageable for Fitch-rated integrated utilities with operations in Spanish renewables.

The affected utilities are Iberdrola, S.A. (BBB+/Stable); EDP - Energias de Portugal, S.A. (EDP, BBB-/Rating Watch Negative); Enel SpA (BBB+/Stable), and Gas Natural SDG, S.A. (BBB+/Stable). Their diversified business profiles and additional measures taken by the companies, including cuts in operating and capital expenditure, should help mitigate the impact of the reduced remuneration.

In a report published today Fitch says the reform significantly cuts current premiums for some existing projects and eliminates subsidies for those old renewables assets that have already received high premiums in the past, for instance, wind farms built before 2005. Legal tail risk exists as the new measures may be contested in courts.

The new remuneration mechanism reduces renewables subsidies by EUR1.7bn in 2014 (18% of total renewables subsidies in 2013) and is part of broader regulatory measures announced in July 2013. These measures have the effect of reducing regulated earnings through lower revenues on renewables and electricity distribution assets, and also through lower capacity payments for gas-fired plants. Along with other measures, the renewables reform demonstrates the government's commitment to prevent the emergence of a new tariff deficit in Spain.

The report 'Hard Landing for Renewables in Spain' is available on www.fitchratings.com or by clicking on the link below.

Link to Fitch Ratings' Report: Hard Landing for Renewables in Spain

here

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