New Power Rates Take Effect for Spain’s Clean-Energy Plants

Jun 20, 2014 5:14 am ET

(Updates with history of subsidies from second paragraph.)

June 20 (Bloomberg) -- Spain set new rates for electricity suppliers that use renewable sources, waste and co-generation based on a “reasonable return,” formally ending a subsidy system dating to the 1990s that had spun out of control.

The Industry Ministry today published the new formulas and tables to be used for generators ranging from wind turbines to solar collectors and waste incinerators in a 1,761-page regulation that takes effect tomorrow. The new return is based on a host of factors, including the cost of investment and the 10-year Spanish government bond yield in the secondary market.

Spain became a world leader in clean-energy, spurring projects by awarding more than 50 billion euros ($68 billion) in subsidies in the last 25 years. At the same time it failed to secure all the money needed to fund the incentives, which accelerated and in 2013 totaled about 9 billion euros.

The system, modeled on Germany’s in the 1990s and paid for mostly by consumers, was increasingly attacked as an unacceptable burden by traditional utilities, some consumer groups and the government. A series of new laws dismantled much of it, aiming “to achieve an economic and financial stability of the electric system and avoid the incorporation of new costs,” the government said in today’s regulation.

While incentives were guaranteed to plant owners for 20 years or longer, the system failed to ensure the government would set prices, or tariffs, paid by consumers at high enough levels to fund the subsidies. That created a soaring “tariff deficit” -- a debt carried temporarily by traditional power distributors and securitized in chunks to private investors.

One legacy is that Spain, like almost no other country, can supply more than half of electricity demand from clean sources during stretches of the day that are sunny and windy.