Bloomberg News

Spain Says $31 Billion Power-System Debt Burden Must Be Shared

February 17, 2012

Feb. 16 (Bloomberg) -- Spanish utilities, energy consumers and the government will need to share the 24 billion-euro ($31 billion) debt burden run up by the nation’s power system, according to Industry Minister Jose Manuel Soria.

“There has to be a distribution of the burden,” Soria said in a speech in Madrid. The debt can be covered by “power bills, utilities’ balance sheets or the public accounts.”

The minister is wrestling with the power system’s mounting liabilities, which are excluded from public borrowing figures even as they are guaranteed by the state. Soria must divide an annual deficit from the system of about 4 billion euros between power companies and consumers to prevent debt growing further.

As a first step, he froze new subsidies for renewable power plants last month, saying it would save about 160 million euros a year. Current subsidies cost consumers about 7 billion euros.

Costs have grown in the past five years on rising regulated payments for the power grid, support for Spanish coal mines and subsidies for renewable energy plants. Revenue from state- controlled prices failed to cover the cost of delivering power.

While the government is working on more measures to rein in debt, it isn’t planning a levy on hydropower or nuclear plants, nor will it take on power-system liabilities, Soria said.

Spain was an early mover in developing renewable energy plants, and support for wind energy helped Iberdrola SA become the world’s biggest producer of clean power, with plants in the U.S. and Brazil. The industry sustains about 110,000 Spanish jobs, according to the Renewable Energy Producers Association.

Competing Priorities

Germany last month said it will phase out support for solar panels by 2017 and U.K. Energy Minister Greg Barker said his country will reduce subsidies every six months and extend the cuts should installations exceed government targets.

Spain is struggling with competing priorities as it seeks to convince investors it can meet a target to lower its budget deficit to 4.4 percent of gross domestic product this year, from about 8 percent last year, while simultaneously trying to create jobs in a country where 23 percent of workers are unemployed.

Generating capacity is about twice Spain’s peak demand after a boom in investment in solar panel installations and combined-cycle gas-fired plants, while the country is ahead of its targets for clean power production, Soria said last month. The suspension won’t affect operating plants or projects that have been approved for subsidies by the government, he said.

--Editors: Tony Barrett, Randall Hackley

To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net


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