Mixed reaction to Spanish tax ruling -- To panic or not?

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Confusion reigns in Spain following a Supreme Court ruling which raises the property tax applicable to wind power and other renewables. "Seriously damaging," says national renewables lobby group, Asociación de Productores de Energías Renovables (APPA). "Irrelevant to the company balance," says utility Iberdrola, the country's biggest wind operator. The true impact will only become clear when the dust settles during next month.

Much depends on how local authorities respond. The ruling allows them to charge property tax at the same rate applicable to conventional generators: 0.6-1.3% of the capital cost. Previously, renewables had been exempt from full blown property tax, paying instead a public utility rate of 0.4%. APPA fears that after the ruling municipalities are bound to want to rake it in, charging the full new rate -- three times the previous figure. The local authorities can take as long as they need to establish the rate they deem appropriate, within the range.

The stink arose in 2005 when municipalities in Galicia, Spain's biggest wind power region in the north of the country, claimed they were being sold short of their rightful property tax dues from wind plant (Windpower Monthly, November 2005). The court has now found in their favour.

Still pondering

Wind group Asociación Empresarial Eólica (AEE) has still not revealed its view, but one member expresses the general feeling: "Municipalities with virgin wind sites are unlikely to discourage developers; after all, most of those sites are virgin because wind resources, and profits from generation, are already marginal without an extra tax burden to boot." Areas already harbouring large-scale wind power, however, might be more tempted to push up taxes: "But even many of those areas have special long term agreements locally with existing wind operators which could make extra taxes counter productive."

So the impact of the ruling on the wind marked remains to be seen. Insiders say APPA's dramatic stance is mainly for the sake of its photovoltaic members. With higher capital costs, their property taxes are also higher than those of wind developers. On the other hand, Iberdrola's sanguine response has also been suspected as a ploy to assuage the downward pressure on the share price of renewables division, Iberdrola Renovables, which fell 7.16% the day after the court ruling. The share price of other renewables also fell, such as Acciona (down 5.3%) and Gamesa (down 4.02%), though all were recovering until the mid-January European stock market crash.

"It will all come out in the wash," says Luis Merino of Energías Renovables, a renewable energy publisher. "Municipalities are unlikely to bite the hand that feeds them; at least not too hard!"

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