3/19/14, "Governments rip up renewable contracts," Financial Post, opinion, Brady Rauch
"Governments across Europe, regretting the over-generous deals doled
out to the renewable energy sector, have begun reneging on them. To slow
ruinous power bills hikes, governments are unilaterally rewriting
contracts and clawing back unseemly profits.
In Italy, one of Europe’s largest economies and one that lavished
billions in subsidies on the renewable sector, the government in 2013
applied its so-called “Robin Hood tax” to renewable energy producers.
Under the new rule, renewable energy producers with more than €3 million
in revenue and income greater than €300,000 must now pay a tax of
10.5%.
That follows a 2012 move to charge all solar producers a five cent
tax per kilowatt hour on all self-consumed energy. The government also
told solar producers that it would stop taking their power – and would
offer no compensation – when their output overwhelms the system.
The result of these and other changes, says the solar industry, has
been a surge in bankruptcies and a massive decrease in solar investment.
In Belgium – where both regional and federal bodies hand out
renewable subsidies – a number of retroactive changes have capped the
largesse renewable producers once received. In one region the price for
“green certificates” – which producers received for renewable energy –
was slashed by 79%.
The government originally committed to buy green
certificates at a benchmarked price for 20 years, then cut it to 10
years.
Belgium’s regulators tried to impose a fee on all energy added to the
grid from small- to medium-sized solar producers. While the country’s
court of appeals struck down that fee, a defiant regional government
plans to reintroduce it next year, forcing all solar producers to pay an
annual fee that varies with the power they pump into the grid. Various
municipalities, meanwhile, are introducing taxes on new and existing
wind turbines.
As in Italy, Belgium’s renewable sector in the county has gone dark
–“imploded” in the view of a solar industry publication. Many companies
shrank or went bankrupt.
In France the government last year cut by 20% the “guaranteed” rate
offered to all solar producers, and retroactively applied it to projects
connected to the grid in the previous three months. The government is
also considering ending an 11% tax break on solar energy producers.
Perhaps the most dramatic moves occurred in Spain, for years the
poster child for those touting a transition to green energy. Since 2000,
Spain has given renewable producers $41-billion more for their power
than it has fetched on the open market. To recover those subsidies, the
Spanish government recently killed its Feed In Tariff (FIT) program for
renewables, which paid them an outlandishly high guaranteed price for
their power, replacing it with the market price for their power plus a
subsidy deemed more “reasonable.” Companies’ profits are now capped at a
7.4% return, following which they must then sell their power at market
rates. That measure is retroactive, with renewable energy producers who
got too fat off their profits now being starved until they reach the
7.4% cap.
For example, if a company spent $100-million on a solar installation
in Spain and was posting a return of 14%, or $14-million, annually on
that investment, then the government would cut it off from subsidies
until its total return – starting from when it was first built – fell to
7.4%, or $7.4 million, a year.
Wind projects built before 2005 will no longer receive any form of
subsidy – a move a wind energy trade group called a “sacking” of the
sector that will see more than a third of wind producers lose their
subsidy.
The fallout in Spain was immediate. Its solar sector, which once
employed 60,000 workers, now employs 5,000. The wind sector is estimated
to have laid off 20,000 workers. Ikea – the Swedish furniture retailer
that became enamoured of renewables – announced it was cutting its
losses and abandoning a solar plant it had built in Spain. Investment in
the sector also collapsed. In 2011, Spain attracted $10 billion in
solar investment. In 2013, the level of investment dropped by almost
90%.
Spain’s Supreme Court offered no sympathy to the solar industry, in
ruling against its argument that the government’s retroactive changes
were wrong. “The evolution of the energy sector … was putting the
financial sustainability of the electricity system at risk,” the court
decided, adding that the companies “do not have a right [to expect the
government compensation regime] not to be changed.”
Europe’s renewable energy investors are facing a harsh reality – that
the promises from politicians can be taken away at any moment. Canada’s
renewable energy investors may soon face that same reality."
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"Brady Yauch is an economist and executive director of Consumer Policy Institute, a division of Energy Probe Research Foundation."
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