ÁGUILAS, Spain — Six years ago, Justo Cruz Rodríguez, who runs a small business here designing signs, was looking for a way to generate a steady, if modest, pension for himself and his father.
So when the government passed a law offering attractive rates for solar energy — and guaranteed them for the next 25 years — he mortgaged his house, his father’s house and even his workshop to install half a dozen rows of solar panels in his father’s garden, with the idea of selling his excess electricity.
“It seemed so safe,” he said recently. “It was a government guarantee.”
But the Spanish government has changed its mind. It plans to pay less, a lot less. Under legislation that goes into effect this year, it will drop its per-kilowatt-hour payment system altogether and effectively impose retroactive cuts in payments. It also plans to make solar power producers pay a charge on electricity they generate and use themselves, a measure that protesters have named the “sun tax.”
- Job cuts planned as Boeing hunkers down to compete with Airbus, consider new plane
- Police: Ohio newborn appears to have died from dog bite
- With Marshawn Lynch retired, what will Seahawks do with money they save?
- Sale of Weyerhaeuser’s Federal Way campus means more intensive development
- Unruly passenger diverts Boston-San Diego flight to Denver
Most Read Stories
Spain has good reason for wanting to take action. It is facing a growing deficit — about $40 billion now — because it has never passed on the true cost of producing energy to its consumers, a problem that has ballooned with the economic crisis. If it does not do something, that deficit will only grow, experts say.
Investors face insolvency
Energy experts across Europe are watching Spain’s actions closely, however, wondering if they amount to folly. Thousands of solar energy investors large and small will doubtless face insolvency, and perhaps just as worrisome, experts say, the new charges for those using their own electricity may set off a rush by owners of solar panels to find ways to sell or use their electricity without reliance on the national grid at all, further reducing its customer base.
Nor is Spain’s abrupt U-turn likely to go over well with future investors, experts say.
“When a government changes the terms of existing contracts, that’s a bad move,” said Toby Couture, a solar energy consultant with E3 Analytics in Berlin, who believes that the government will have trouble when it wants to develop public-private partnerships to fund water treatment plants, highways or pipelines, for instance.
“There are reasons we live by contract rules,” he said. “If you keep changing the rules of the game, then, after a while, your friends don’t want to play. The government has lost credibility.”
Spain was once at the forefront of the solar energy movement. It barreled into the renewable-energy business, winning over thousands of investors big and small with its guarantees. Experts say the country has already come close to the European Union’s goal of 20 percent reliance on renewable energy by 2020.
But experts say the government never expected so much investment and never came up with a way of paying for it. When the economic crisis hit in 2008 and demand for energy went down, the deficit widened at an even faster rate.
Spanish officials say they have no choice now but to reduce the payments, which were once offered to spur investment in solar energy but are now considered overly generous, especially since the cost of solar panels has dropped precipitously in recent years.
The new government payment system has left thousands of investors, like Cruz, 51, in a state of shock.
“I am going to lose everything,” Cruz said, standing near the panels he thought would make his old age easier. “I will be homeless. At my age, homeless.”
The government has proposed cuts to other parts of the energy sector as well, and has taken other steps to reduce the energy deficit, including asking Spaniards to pay more for the electricity they use. But no other measures are as drastic as the reduction of payments to the nearly 60,000 producers of solar power, 50,000 of which are small-time investors like Cruz, according to the Spanish Solar Power Union.
“If we did nothing, the only two alternatives would either be bankruptcy of the system or an increase of the price to consumers of more than 40 percent,” said José Manuel Soria, the minister for industry, energy and tourism, defending the government plans shortly after they were announced last summer.
The government’s plans have prompted angry accusations across the energy sector. Solar energy producers feel unfairly singled out and say more savings might be squeezed from other electricity producers. Spain’s other energy producers are offering little sympathy.
Under the new law, t
he Solar Power Union estimates a cut in income of 30 to 50 percent for producers.
Already, some investors are turning to the courts. Their lawyers say the original law specifically guaranteed a fee of 58 cents for each kilowatt-hour for the next 25 years and guaranteed 80 percent of that for the years thereafter. It also clearly stated that any future changes could affect only new installations.
“The law was drafted in a very sure way,” said Piet Holtrop, a Barcelona lawyer representing about 1,200 investors, ranging from individuals like Cruz to small town councils. “The people who invested gave it some thought. They were not just putting their money into anything. It was a sound investment.”
Several large investors have decided to take Spain to the World Bank’s arbitration agency, the International Center for Settlement of Investment Disputes.
Government officials declined to answer questions on the subject. They are being widely criticized for coming up with the new plan without consulting any of the affected parties and for changing their mind about several components in the last few months.
“The government made a bad situation worse by following a process that lacked consultation and transparency and instead created confusion and uncertainty,” said David Robinson, an economist in Madrid who specializes in energy policy and who is a senior research fellow at the Oxford Institute for Energy Studies.
But with a solid majority in Parliament, the government had little trouble getting approval for its main proposals last month, although many details will be clear only when new regulations are published.
As for Cruz, the sign designer, his business has suffered badly in the economic crisis. After the government first reduced his income from the panels in 2010 by capping the amount of electricity it would pay for, he renegotiated the terms of his loans. But he ended up with a higher interest rate and a longer term of repayment.
He has already given up any dreams that the panels will contribute to his retirement.
“I can’t go to the bank and say, ‘I am not going to pay you anymore,’ ” he said. “But the government can just do what it likes? That does not seem right to me.”