(The author is a Reuters market analyst. The views expressed
are his own.)
By Gerard Wynn
LONDON Aug 2 Developers have made big returns
from subsidies on renewable energy projects, raising the
question whether new tax increases are justified in a continuing
financial crisis or merely state opportunism.
Investors are arguing the latter, but the picture is more
The Czech Republic recently won court backing for a tax on
solar projects, which Bulgaria is considering emulating, while
Spain plans to raise an additional 6 billion euros ($7.38
billion) or so a year from new taxes on power generation.
The measures all have the effect of cutting returns to
projects, so it could be argued that they are similar to
retroactive cuts in subsidies that, in the case of renewable
energy, guarantee a power price premium called a feed-in tariff.
Struggling EU and euro zone countries may be tempted to
follow suit after offering overly generous subsidies that have
left consumers nursing liabilities that will last 25 years or
Developers can do nothing about retroactive cuts that lower
returns on committed capital and undermine faith in government
policy and targets.
Such cuts are different to tweaks that reduce support for
future projects - now a mainstream policy among EU countries -
while protecting subsidies to existing operations.
One test is to weigh the latest proposals in context.
The picture is mixed. Spain faces a crippling budget deficit
and has increased taxes and cut spending across its economy.
Bulgaria and the Czech Republic, meanwhile, are straying more on
the side of opportunism, specifically targeting solar programmes
in what appear to be clumsy attempts to reverse past decisions
and claw back subsidies at the expense of private capital.
Recession-plagued Spain last month unveiled new austerity
measures designed to slash 65 billion euros from the public
deficit by 2014, as Prime Minister Mariano Rajoy yielded to EU
pressure to try to avoid a full state bailout.
Measures included adding 3 percentage points to taxes on
goods and services, alongside reduced benefits for civil
servants in attempts to cut Madrid's deficit and borrowing
costs, which have also reined in school and hospital budgets.
Against that backdrop, planned taxes on energy revenues
appear justified in principle, depending on how far they bleed
operators: bankrupting them would only undermine cash-strapped
local regions and banks.
Also critical is whether the taxes are applied fairly.
Details so far are sketchy in a deadline slippage, but they
reportedly apply to all technologies including thermal fossil
fuel plants, nuclear power, hydropower and solar and wind
By contrast, a Czech solar tax is more targeted: it came
into effect in December 2010 and applied retroactively to
projects commissioned in the previous two years. The
constitutional court upheld the tax in May after solar plant
operators threatened to sue.
Bulgaria is mulling over similar additional taxes or fees on
Both the Czech and possible Bulgarian measures are more in
the context of broader packages to reduce or eliminate solar
power support, rather than being part of desperate measures to
bolster more general fiscal austerity programmes.
Governments across Europe are pulling back from renewable
subsidies for new projects as green energy becomes more
competitive after sharp falls in equipment prices.
Britain and Germany have as much as halved support for solar
power in the past six months, while Spain scrapped support
altogether in January.
Madrid faces a different budget problem. In most countries
utilities pay the solar power premium and pass on the cost to
electricity consumers. In Spain, however, the treasury shoulders
the liability, which is swelled by artificially low retail power
prices that are meant to stimulate growth and competitiveness
and control inflation.
The full liability is the difference between those regulated
retail power prices, or tariffs, and the cost of power
generation, transmission and the renewable energy premium.
The government now bears a "tariff deficit" of about 25
billion euros, which it ultimately owes to utilities. Spain has
sought to reduce this deficit by raising power prices,
eliminating support for new renewable energy projects,
retroactively trimming the amount of subsidy on existing
projects and now by raising energy taxes.
It is fine to scrap a programme if you cannot afford it, but
cutting returns to existing projects because you miscalculated a
subsidy appears fickle and over-reaching.
For Spain, however, the circumstances are exceptional and
the test will be how fairly it applies the new taxes and whether
it can avoid bankrupting developers and undermining a bigger
goal to save the economy.
($1 = 0.8132 euros)
(Editing by David Goodman)