Wind subsidy freeze could hit jobs and growth

EUROPE: Moratoria against renewables and possible cuts to subsidies across Europe could be counter-productive from a macro-economic perspective, warned EWEA chief executive Christian Kjaer.

Two of Europe's largest wind markets - Spain and Portugal - have introduced moratoria on new renewable-energy projects as part of austerity drives, while in Poland there is the spectre of retroactive subsidy cuts. Adverse legislation is also being considered in Estonia, Bulgaria and the Czech Republic.

"Yes, austerity measures are needed, but they have to be combined with strategies to create jobs and get economies moving again," said Kjaer. "Wind is capital intensive - all the costs are upfront - so we can create a lot of jobs quickly."

At the end of January the Spanish government introduced a moratorium on subsidies for all new renewables capacity not already approved. The subsidy freeze applies to all renewables projects not already on the national renewables register. Existing online capacity is not affected.

Spain's moratorium echoed its neighbour Portugal's move on 5 January to suspend licensing of all renewable-energy projects. This blocks the first phase in the consenting process for all new renewable electricity generation as well as projects designed to generate energy from industrial, agricultural or urban wastes. Hydro-electric power and co-generation are exempt from the moratorium.

Spanish woes

Instead, wind-energy jobs are being lost. As long ago as February 2011 Gamesa threatened factory closures due to hostile market conditions. Spain's subsidy moratorium could see companies leave the market for good, warned John Wood, a partner at law firm Norton Rose.

However, he was less concerned about the effect of such moves on the rest of the European market. "Most markets have had their ups and downs so it's something developers learn to live with," he said.

In addition to its project-licensing moratorium, Portugal is exploring the possibility of cutting wind tariffs. However, the government has stressed that any reduction in subsidies will apply only to new projects.

The same cannot be said for Poland, where initial consultation was completed in February on draft legislation that could cut subsidy levels retroactively by 25% for wind farms larger than 200kW and cap the lifetime of subsidy payments at 15 years. The legislation proposes a reduction in green certificates awarded to wind plants from the current one certificate per MWh to 0.75/MWh. The change could enter force on 1 June 2012.

The good news is that the retroactive element of the tariff cut is likely to be removed or revised to be less harsh, according to lawyer Rafal Hajduk, a partner at Norton Rose's Warsaw office.

Positive effects

Taken as a whole, Poland's proposed law could be a boon for the wind industry, according to Hajduk. The legislation proposes that offshore wind subsidies be increased to 1.2 green certificates per MWh and that any renewable capacity more than 15 years old - in practice, Poland's hydroelectric capacity - no longer be eligible for green certificates.

By removing around 1GW of hydroelectricity from the green certificate market the government would substantially reduce supply and drive up the price. It has also proposed to increase green-certificate quotas, which would further boost demand and the price.

While Poland's cloud has a silver lining, the situation is less encouraging elsewhere in central and eastern Europe. Estonian politicians believe the country's renewables subsidy - a premium of EUR0.0537/kWh on top of the market price for the first 12 years of operation - is too generous.

As a result, the government is considering halving subsidy levels. The proposed new system would tie the premium paid to the Nord Pool spot market on an inverse relationship basis - the higher the market price paid, the lower the subsidy and vice versa. These changes could be effective from January 2013.

Meanwhile, Bulgaria may make it more difficult for developers to access project financing by pushing back the date when a project can secure its feed-in tariff (FIT). Currently, the FIT is agreed on the signing of a preliminary grid-connection contract, but an amendment to last year's draft renewable-energy law could set it back, until after a 72-hour operational test is conducted. Bulgarian wind-energy association executive director Sebastian Noethlichs said the new rule "could add another three months" to a typical 18-month wait that developers face before securing finance.

Finally, the Czech Republic parliament's upper house has approved a draft law that undermines the renewables support mechanism in all existing contracts between plant operators and Czech grid companies. The law needs lower-house approval to become final, and if agreed would come on top of already rapidly shrinking subsidy rates.