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Green Investors Face Bankruptcy As Spain Cuts Subsidies

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Ilan Brat and Christopher Bjork, The Wall Street Journal

Spain’s government plans to reduce subsidies to renewable-energy producers by 10% to 20%. The move could drive tens of thousands of struggling solar-energy companies and individual investors into default.

Juan Antonio Cabrero is bracing for the savings he invested in a solar-energy farm in northern Spain to disappear into light.

In 2008 Mr. Cabrero put up his €20,000 ($26,200) life savings and took on a €80,000 bank loan to buy part of the solar farm, pledging his home in nearby Tafalla as a guarantee. Spain’s government was promising more than two decades of large subsidies to spur the growth of solar energy, and Mr. Cabrero thought his investment would safely provide a nest egg for his planned retirement in 2018.

Now, because of cuts in renewable-energy subsidies the government is said to be planning, the 60-year-old Mr. Cabrero may lose both his savings and his house.

“I feel cheated, misled and assaulted by my own government,” said Mr. Cabrero, who works in sales for a company that builds hybrid-electric buses. “I never would have done this if I had known what would happen.”

Under a broad energy-sector overhaul to be announced as early as June 21, Spain’s government will reduce subsidies to renewable-energy producers by 10% to 20%, people familiar with the plan said Thursday.

The move could drive tens of thousands of struggling solar-energy companies and individual investors like Mr. Cabrero into default at a time of deepening recession and eventually boost loan losses for banks that financed the projects.

A spokeswoman for the Energy Ministry declined to comment.

Spain’s renewable-energy sector includes wind- and solar-energy projects. The proposed cuts are a far bigger threat to solar-energy investors because their projects are more heavily indebted.

Deputy Energy Minister Alberto Nadal told representatives of Spanish and foreign banks late last month that the government was planning to cut the level of government-guaranteed revenue for renewable-energy production, a government-guaranteed payment that effectively acts as a subsidy because it is far above market rates, according to people briefed on the meeting.

Bank executives present at the meeting argued that they shouldn’t have to foot the bill for the energy overhaul by assuming any resulting losses, a senior Spanish banker said, adding that Spanish banks are still lobbying to soften the planned cuts.

Those government subsidies increase the costs for running the nation’s electrical system. For years, the subsidies and other overall costs of running the system have been higher than the amount of money generated by actual sales of power to households and businesses, resulting in a “tariff deficit.” Reducing the tariff deficit helps cash-strapped Madrid’s fiscal picture because the government likely would have to devote less money to filling that gap in future years.

Spain’s electricity system has registered deficits during most of the past decade. By May, the total accumulated deficit had reached about €26 billion ($34.04 billion). The government has promised to narrow the annual gap this year as it struggles to bring down its budget deficit and limit the rise in household electricity bills.

Spain began offering large subsidies and other incentives in the late 2000s to promote the growth of solar-energy projects. In addition, banks loaned the renewable-energy companies an estimated €30 billion. As a result, the amount of solar-power capacity installed in Spain far surpassed official government targets, increasing the tariff deficit.

Since 2010, the government has taken steps to curb the tariff deficit, including imposing a temporary limit on the hours of electricity generation for which most solar-energy producers receive payment above market rates. These producers say the limits adopted since 2010 could cut their revenue by as much as 40% this year.

José Donoso, managing director of the Spanish Photovoltaic Union trade association, said the subsidy cuts would also lead to a wave of defaults in the renewable-energy sector because companies managing many of the 60,000 or so solar-power installations in Spain would have trouble servicing their debt loads. He said he couldn’t estimate how many were at risk of default.

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