On 2nd February, a new Royal Decree-Law was published, implying another setback for the renewable energy industry and lack of confidence in future investments, especially in terms of foreign capital. The new RDL amends the price update regime and almost forces the selection of sale at list instead of market price, causing damage to solar thermal or cogeneration technologies.
For further insight into the impact of the new update index, the Consumer Price Index, CPI, is replaced by the CPI at constant tax rates excluding unprocessed foods and energy products. Therefore, for 2013, the reference CPI is altered from 2.975% to 0.472%. We must also remember that Royal Decree 661/2007 had already been amended by lowering the CPI 50 basis points to update the price through considering non-use of fossil fuels for generating renewable energy, etc. This means that the new index penalises renewable energy facilities twice so, finally, after subtracting the 50 basis points, 2013 prices have been updated with -0.028%, or rather, they have dropped in relation to 2012.
On the other hand, the effect of this update on photovoltaic solar power projects must be understood as follows:
- Royal Decree Law 14/2012: A regulated price cut is established up to a maximum of 1,250 kWh/kW nominal/year for projects paid for under Royal Decree 661/2007. For projects developed under the economic regime of Royal Decree 1578/2008, 5 zones were established with different maximum annual price list rates as classified by the Technical Building Code.
- Royal Decree 1565/2010: >1 MW or >2 MW facilities must be connected to a control centre to measure active power in real time and be adapted to new voltage dip requirements, respectively. It was obvious to any reader that this meant further significant investment with regard to voltage dips as well as a new operating cost.
- Royal Decree Law 12/2012: Although this is a new tax law, its effect on leveraged projects such as renewable energies has a significant impact through establishing corporate tax deduction limits with regard to financial expenses. This leads to less expenditure and therefore a greater tax base, or rather, greater benefit and less cash and cash flow problems.
- Law 15/2012: It creates a new 7% tax applicable to any power generation project. In addition to implying greater tax pressure on investments, it also creates new formal tax filing obligations. We must remember that, in addition to major investors and corporations, there are many private investors in the photovoltaic market who considered this to be a safe, stable and steady investment and who are now associated with nuclear power plants and combined cycles for the purpose of certain obligations.
- Service agreements: Normally, all agreements associated with facilities in general are reviewed based on the CPI. Therefore, in addition to the 5 basis point difference we have to bear, we now also find that the income/cost ratio of operating expenses is becoming narrower and could be a problem for certain producers.
With this new situation, investment in renewable energies is highly exposed to risks regarding bank and contract obligations. The debt must be restructured and all service agreements renegotiated (O&M, Market Representation, Asset Management, Land, etc.). aBalados is doing this work for all its clients as part of its commitment and offers its services to all interested parties, investment funds, family office, private investor, etc.
Further information: info(@)abalados.es – +34 955 320 603