* Draft energy rules force energy downsizing, focus on water
* Writedown on energy assets could trigger first-ever loss
* Company already scrapped dividend payment for first time
(Adds share movement after Fidelity stake hike)
By Tracy Rucinski
MADRID, Feb 14 When Acciona's Jose Manuel
Entrecanales diversified his family's construction business into
renewable energy ten years ago it looked like a smart move, but
now that Spain is cutting subsidies he is being forced to
rethink, sources say.
Once a strong supporter of renewables, the Spanish
government is expected to put forward within days regulation on
wind farm subsidies that will help reduce its 30-billion-euro
($41 billion) electricity tariff deficit.
Acciona, one of the first Spanish builders to move
away from its core business before the 2008 downturn, is now
facing a yearly hit of as much as 250 million euros ($340
million) - or nearly 20 percent of 2012 core earnings.
To offset that, Acciona will try to sell more renewable
energy assets abroad, having already sold wind farms in Germany
and Korea, find international partners to finance energy
projects abroad - where competition from U.S. and Asian rivals
is on the rise - or even bring in partners for its Spanish
operations, two sources with knowledge of the matter said.
If co-financing is hard, the global leader in wind energy -
with a presence in more than 30 countries - will simply build
energy projects for clients, such as its wind farm in Canada and
a photovoltaic plant in Australia, the sources said.
"The old model was owning, developing, investing, and
operating assets. As the elimation of incentives dents capacity
for investment, the energy business will become more like the
construction side of Acciona: building stuff for clients," one
of the sources said.
Entrecanales, 49, is also considering tendering for
long-term operating and management as well as building and
engineering contracts on the installations, the source said.
To drive further growth, he may beef up Acciona's water
treatment business, which accounts for about 3 percent of EBITDA
versus 80 percent for energy, the sources said.
Acciona is building the world's largest waste water
treatment plant in Mexico and water sanitation is seen as a
major growth area, particularly in Latin America and Asia.
Shares in Acciona rose 7 percent to 52.65 euros on Friday,
leading gainers on Spain's blue chip index after U.S.
fund Fidelity doubled its stake to 2 percent.
Acciona has already issued bonds and scrapped a dividend
payment, a first for the company, to shore up its finances in
anticipation of the renewables reform, the broad thrust of which
was announced by the government in July.
But draft details revealed last week are harsher than
expected on mature wind assets, in which Acciona, along with
domestic rival Iberdrola, is a major player with 4,500
megawatts of capacity.
Iberdrola's traditional electricity and gas businesses,
which have suffered less from the government's energy overhaul,
will mitigate the impact.
But the cuts, reversing policy that created a deep gap in
regulated prices and costs over several years, are far more
serious for Acciona and may push it into a rights issue to help
refinance debt that matures in 2014 and 2015, analysts said.
Brokerage Fidentiis said it expects and impairment
charge of as much as 2 billion euro in 2013 results, due by Feb.
28, given the destuction of value of its energy assets,
potentially triggering the company's first-ever net loss.
Acciona declined to comment.
GONE WITH THE WIND
Spain plans to eliminate subsidies on wind capacity
installed before 2005 while assets installed between 2005 and
2008 will receive the wholesale price plus a separate
remuneration that will be lower than originally promised.
Analysts say nearly 40 percent of Acciona's wind
installations were built before 2005.
The wind sector will bear 70 percent of an estimated 2.1
billion euros of cuts to renewable energy subsidies as part of
the draft measures, which will now calculate remuneration by
megawatts rather than by output.
Although critics agree reform was needed, they argue the
measures have been haphazard and deeply damaging to businesses.
"One needs to ask whether this reform was necessary right
now at the expense of a loss of value for private companies and
investors," Rafael Mateo, CEO of Acciona Energia, whose sole
business is renewable energy, said at a business event.
Spain's U-turn on energy policy has angered foreign
investors who have filed international arbitration claiming the
changes renege on their contracts.
($1 = 0.7353 euros)
(Additional reporting by Jose Elias Rodriguez; Editing by
Louise Ireland and Julien Toyer)