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A long-awaited Spanish energy regulation shakeup proposes to tax all power generation systems equally. But a minor detail in the law could be catastrophic for the CSP industry.

By Jason Deign

The best you could say about Spain’s potential new energy law is it could have been worse. In its original incarnation, leaked in July, the energy system reform cooked up by Industry Minister José Manuel Soria would have slapped a 13% tax on CSP plants.

In a bid to combat Spain’s soaring tariff deficit, Soria had planned to impose differing rates of tax on different types of energy generation, ranging from 4% on traditional sources to up to 19% on photovoltaic solar.

Thankfully for the solar industry, the measures fell foul of Soria’s opposite number in the Treasury Department, Cristóbal Montoro, who has family links with Abengoa, one of Spain’s biggest CSP developers.

In a public spat that simmered over the holiday season, Montoro argued there would be legal problems with imposing different tax rates on what is essentially a single product: energy. And with the release of the new proposed legislation this month, it seemed he had won the day.

The Proposed Law of Fiscal Measures for Energy Sustainability (or Proyecto de Ley de Medidas Fiscales para la Sostenibilidad Energética in Spanish), which aims to raise €3 billion a year, has as its centrepiece a uniform 6% tax for all forms of energy generation.

Additionally, the windfall profits that Spain’s big five electrical companies have been enjoying until now from fully amortised nuclear and hydro plants will be curtailed with the introduction of taxes on radioactive waste and a 22% levy on the use of water for electricity production.

Furthermore, clean technologies will be encouraged by the application of a ‘green cent’ tax on carbon-based fuels, ranging from €0.0279 per cubic metre of natural gas to €14.97 per ton of coal.

All this sounds like good news for CSP, which to date has managed to avoid the worst of the cuts inflicted on renewable energy in Spain over the last three years.

Positive step?

Indeed, says Luis Crespo Rodríguez, general secretary of Protermosolar, the Spanish CSP industry body: “Compared to the percentages that were leaked at the time, this is a positive step.”

However, in its present form the law contains one seemingly minor detail that could have major consequences on the CSP sector.

Tucked away on page 15 of the regulation proposal is a clause which states: “The electrical energy due to the use of fossil fuels in a generation installation that uses as its primary source a renewable energy will not be subject to an economic bonus.”

Protermosolar’s concern is that this could hit the generation profits that Spanish CSP plants make while they are using gas as a backup fuel, and which have been factored into every operator’s business plans.

As Mariana Fernández Renedo, of SENER’s communications department, points out: “Practically all the CSP plants have a gas backup. The previous legislation allowed a given percentage of gas to be used.”

Protermosolar believes that the removal of subsidies for gas-based CSP plant production could hit up to around 15% of industry profits.

Says Crespo: “We understand that intention was to make savings wherever possible but that 15% was already included in business plans. Any measure that touches it will be retroactive, and we will not accept it.”

Besides this very obvious discrimination against CSP, Crespo notes two other reasons why the flat-rate tax might not be as equitable as it seems.

Taking a hit

The first is that renewable energy companies will have to take a hit from the 6% tax (because their retribution is set by law) while companies that produce energy from traditional energy sources (predominantly the electrical giants) will be able to pass the extra cost onto customers.

This looks almost certain to be the case. Spanish consumers are bracing themselves for further electricity price hikes after having put up with an increase of almost 70% in the cost of energy over the last half decade.

The second criticism of the proposed law is that it is still not even clear whether it will really deal with Spain’s tariff deficit, which now tops €24 billion. “We are worried that we might be asked to make all this effort and the deficit will not be solved,” Crespo says.

Insiders believe that if the law goes through in its current form then Spanish CSP plants may have to be refinanced many times over to save some yield out of them, potentially triggering a flurry of ownership changes.

Crespo is hopeful it will not come to that, though.

The proposal, which Spanish daily El Pais this month said had “upset everyone affected by the measures, without exception”, will be debated over the coming months and Protermosolar is in contact with the Ministry of Industry to make the case for leaving gas profits untouched.

“The measure would have minimal impact on the tariff deficit,” says Crespo. “But within our sector it could do a lot of damage.”

To respond to this article, please write to Jason Deign

Or contact the editor, Jennifer Muirhead