Wind braces itself for subsidy rollback

PORTUGAL: A commitment to revise renewables tariffs in Portugal has raised concerns within the wind sector about the financial viability of future, and possibly existing, wind projects. The pledge was included in a deal to slash Portuguese public spending, negotiated in May between the country's national government and its financial institutions.

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It forms part of an agreement hammered out at the insistence of the three institutions that will orchestrate an emergency financial bailout for Portugal - the EU, the European Central Bank and the International Monetary Fund. Under the deal, the Portuguese government must consider a renegotiation of existing feed-in tariffs and perhaps lower them for new contracts to ensure that the tariffs do not over-compensate producers.

It also recommends developing alternative mechanisms to feed-in tariffs - such as feed-in premiums - for mature technologies such as onshore wind.

Portugal's public finances are in a complicated situation, acknowledged Anibal Fernandes, president of wind-power consortium Energias Eolicas de Portugal. "But it is absurd to talk about lowering tariffs for wind power since wind power is lowering the cost of electricity," he said.

Wind farms developed in Portugal since 2006 produce electricity at a cost of EUR67/MWh, lower than the EUR75/MWh cost of gas-fired electricity, said Fernandes. This amounts to a saving of EUR800 million in gas imports for 2010 alone. The sector has created 10,000 jobs since 2005, he added.

Following Spain

The problems facing the Portuguese wind industry could follow the recent experience of neighbouring Spain where changes to feed-in tariffs and targets have slowed wind development to a crawl.

A senior Portuguese wind-power sector executive, who did not wish to be named, said that the danger of a Spanish boom and bust situation is less likely in Portugal because the growth in wind power has not been so fast. However, he said "given our high financial leverage, if the feed-in tariff is changed, we are going to have problems with our financial agreements".

According to Fernandes, 1.5GW of new capacity scheduled for development by 2015 would be put in jeopardy if existing feed-in tariffs were scaled back due to a lack of investors. If a country wants to keep the confidence of the markets, it cannot do what the Spanish government did and retroactively cut renewables tariffs, he said.

A new conservative coalition government was elected in June to replace the socialist government, which negotiated the financial bailout package. The coalition will be responsible for implementing the public-spending cuts.

The anonymous senior executive said he was confident that the new government would not take short-term measures that could affect the renewables sector. Fernandes said he hoped the new administration realised it was good "to cut the fat but not the muscle" necessary for Portugal's economic recovery.

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