Left behind: Uncertain future for investors hit by cuts in Spain

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Ilaria Valtimora
September 22, 2017
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Left behind: Uncertain future for investors hit by cuts in Spain

After four years of market standstill, the Spanish Government held two renewables auctions, in May and in July, to attract new investors and bring Spain’s wind sector back to its former glory. It is too early to say whether that has been a success.

But what about those who invested in Spanish renewables before that standstill?

Remember, these were the investors hit by a series of retroactive cuts to feed-in tariffs for renewable energy projects, including wind farms, as part of package of austerity measures aimed at helping Spain out of the economic crisis. The first cuts were implemented in 2010 under the Socialist Workers’ Party’s government, and the last in 2013, when the People’s Party’s package of electricity market reforms was approved.

London-based asset management firm Hg Capital was among those investors that bought renewable energy assets, including wind projects, in Spain between 2008 and 2011. We spoke to Luis Quiroga, director of the renewable power team, about what has happened since those cuts were introduced and whether there is any way out for investors.

The prognosis is not good. He says: “Spain is an unusual market as it is the only large market for renewables in Europe that has done drastic retroactive cuts. These retroactive cuts have implied for who invested before them, a loss of equity. Your equity is gone. This means that your assets are now essentially worthless."

He adds that wind investors face a further challenge. In many cases, projects that were built in the first wave of renewables investments in the countries now only receive market power prices.

“This poses a problem because the assets were designed under completely different circumstances, when the revenues were higher, but also more stable and not exposed to market volatility, but that’s no longer the case,” he says. “This means that for example in some cases you can’t even cover your operational costs or required repairs in the wind farms."

Faced with this situation, the only option for investors to recover their costs is by pursuing cases against the Spanish government in international courts.

Spain has faced 30 claims over its renewable energy reforms, with just two been resolved so far and little consistency. Last January, the Arbitration Institute of the Stockholm Chamber of Commerce found in favour of the Spanish government, but this was reversed this May.

Specifically, London-based asset manager Eiser Infrastructure and its Luxembourg-based subsidiary Energia Solar Luxembourg SARLwon €128m compensation as the International Centre for Settlement of Investment Disputes determined that Spain had violated its international obligations to them by overhauling the subsidies. The case concerned a €935m investment committed to three thermo-solar power plants in Spain in 2007.

However, this does not help Spanish companies. Only overseas investors can file a claim with an international court, and they are a small part of the market.

According to the Spanish investments registry, foreign investments in the energy sector in the country represent around 11% of total foreign investments, with the remaining 89% made up of Spanish investors. This means that for domestic investors, possibilities of costs recovery are small. Spanish companies have no form of appeal in international courts, so their only hope lies in the Spanish court. But this would mean facing long trials and, in some cases, judges chosen because they share views similar to the government's, making the possibility of success even smaller.

With these background, who will be so brave to invest in Spanish renewables now? Indeed, developers are currently finding it difficult to find new investors, and this is not just because of what happened in the past. The current energy regulation, introduced in 2013, has given to the government the power to decide the return that power plants can get and change it.

This has generated uncertainty for investors as well as unattractive returns. As Quiroga says: “Higher risk and lower return… I would be interested in seeing who will be investing in”.

We are too, as Spain is still a long way from its glory days.

After four years of market standstill, the Spanish Government held two renewables auctions, in May and in July, to attract new investors and bring Spain’s wind sector back to its former glory. It is too early to say whether that has been a success.

But what about those who invested in Spanish renewables before that standstill?

Remember, these were the investors hit by a series of retroactive cuts to feed-in tariffs for renewable energy projects, including wind farms, as part of package of austerity measures aimed at helping Spain out of the economic crisis. The first cuts were implemented in 2010 under the Socialist Workers’ Party’s government, and the last in 2013, when the People’s Party’s package of electricity market reforms was approved.

London-based asset management firm Hg Capital was among those investors that bought renewable energy assets, including wind projects, in Spain between 2008 and 2011. We spoke to Luis Quiroga, director of the renewable power team, about what has happened since those cuts were introduced and whether there is any way out for investors.

The prognosis is not good. He says: “Spain is an unusual market as it is the only large market for renewables in Europe that has done drastic retroactive cuts. These retroactive cuts have implied for who invested before them, a loss of equity. Your equity is gone. This means that your assets are now essentially worthless."

He adds that wind investors face a further challenge. In many cases, projects that were built in the first wave of renewables investments in the countries now only receive market power prices.

“This poses a problem because the assets were designed under completely different circumstances, when the revenues were higher, but also more stable and not exposed to market volatility, but that’s no longer the case,” he says. “This means that for example in some cases you can’t even cover your operational costs or required repairs in the wind farms."

Faced with this situation, the only option for investors to recover their costs is by pursuing cases against the Spanish government in international courts.

Spain has faced 30 claims over its renewable energy reforms, with just two been resolved so far and little consistency. Last January, the Arbitration Institute of the Stockholm Chamber of Commerce found in favour of the Spanish government, but this was reversed this May.

Specifically, London-based asset manager Eiser Infrastructure and its Luxembourg-based subsidiary Energia Solar Luxembourg SARLwon €128m compensation as the International Centre for Settlement of Investment Disputes determined that Spain had violated its international obligations to them by overhauling the subsidies. The case concerned a €935m investment committed to three thermo-solar power plants in Spain in 2007.

However, this does not help Spanish companies. Only overseas investors can file a claim with an international court, and they are a small part of the market.

According to the Spanish investments registry, foreign investments in the energy sector in the country represent around 11% of total foreign investments, with the remaining 89% made up of Spanish investors. This means that for domestic investors, possibilities of costs recovery are small. Spanish companies have no form of appeal in international courts, so their only hope lies in the Spanish court. But this would mean facing long trials and, in some cases, judges chosen because they share views similar to the government's, making the possibility of success even smaller.

With these background, who will be so brave to invest in Spanish renewables now? Indeed, developers are currently finding it difficult to find new investors, and this is not just because of what happened in the past. The current energy regulation, introduced in 2013, has given to the government the power to decide the return that power plants can get and change it.

This has generated uncertainty for investors as well as unattractive returns. As Quiroga says: “Higher risk and lower return… I would be interested in seeing who will be investing in”.

We are too, as Spain is still a long way from its glory days.

After four years of market standstill, the Spanish Government held two renewables auctions, in May and in July, to attract new investors and bring Spain’s wind sector back to its former glory. It is too early to say whether that has been a success.

But what about those who invested in Spanish renewables before that standstill?

Remember, these were the investors hit by a series of retroactive cuts to feed-in tariffs for renewable energy projects, including wind farms, as part of package of austerity measures aimed at helping Spain out of the economic crisis. The first cuts were implemented in 2010 under the Socialist Workers’ Party’s government, and the last in 2013, when the People’s Party’s package of electricity market reforms was approved.

London-based asset management firm Hg Capital was among those investors that bought renewable energy assets, including wind projects, in Spain between 2008 and 2011. We spoke to Luis Quiroga, director of the renewable power team, about what has happened since those cuts were introduced and whether there is any way out for investors.

The prognosis is not good. He says: “Spain is an unusual market as it is the only large market for renewables in Europe that has done drastic retroactive cuts. These retroactive cuts have implied for who invested before them, a loss of equity. Your equity is gone. This means that your assets are now essentially worthless."

He adds that wind investors face a further challenge. In many cases, projects that were built in the first wave of renewables investments in the countries now only receive market power prices.

“This poses a problem because the assets were designed under completely different circumstances, when the revenues were higher, but also more stable and not exposed to market volatility, but that’s no longer the case,” he says. “This means that for example in some cases you can’t even cover your operational costs or required repairs in the wind farms."

Faced with this situation, the only option for investors to recover their costs is by pursuing cases against the Spanish government in international courts.

Spain has faced 30 claims over its renewable energy reforms, with just two been resolved so far and little consistency. Last January, the Arbitration Institute of the Stockholm Chamber of Commerce found in favour of the Spanish government, but this was reversed this May.

Specifically, London-based asset manager Eiser Infrastructure and its Luxembourg-based subsidiary Energia Solar Luxembourg SARLwon €128m compensation as the International Centre for Settlement of Investment Disputes determined that Spain had violated its international obligations to them by overhauling the subsidies. The case concerned a €935m investment committed to three thermo-solar power plants in Spain in 2007.

However, this does not help Spanish companies. Only overseas investors can file a claim with an international court, and they are a small part of the market.

According to the Spanish investments registry, foreign investments in the energy sector in the country represent around 11% of total foreign investments, with the remaining 89% made up of Spanish investors. This means that for domestic investors, possibilities of costs recovery are small. Spanish companies have no form of appeal in international courts, so their only hope lies in the Spanish court. But this would mean facing long trials and, in some cases, judges chosen because they share views similar to the government's, making the possibility of success even smaller.

With these background, who will be so brave to invest in Spanish renewables now? Indeed, developers are currently finding it difficult to find new investors, and this is not just because of what happened in the past. The current energy regulation, introduced in 2013, has given to the government the power to decide the return that power plants can get and change it.

This has generated uncertainty for investors as well as unattractive returns. As Quiroga says: “Higher risk and lower return… I would be interested in seeing who will be investing in”.

We are too, as Spain is still a long way from its glory days.

After four years of market standstill, the Spanish Government held two renewables auctions, in May and in July, to attract new investors and bring Spain’s wind sector back to its former glory. It is too early to say whether that has been a success.

But what about those who invested in Spanish renewables before that standstill?

Remember, these were the investors hit by a series of retroactive cuts to feed-in tariffs for renewable energy projects, including wind farms, as part of package of austerity measures aimed at helping Spain out of the economic crisis. The first cuts were implemented in 2010 under the Socialist Workers’ Party’s government, and the last in 2013, when the People’s Party’s package of electricity market reforms was approved.

London-based asset management firm Hg Capital was among those investors that bought renewable energy assets, including wind projects, in Spain between 2008 and 2011. We spoke to Luis Quiroga, director of the renewable power team, about what has happened since those cuts were introduced and whether there is any way out for investors.

The prognosis is not good. He says: “Spain is an unusual market as it is the only large market for renewables in Europe that has done drastic retroactive cuts. These retroactive cuts have implied for who invested before them, a loss of equity. Your equity is gone. This means that your assets are now essentially worthless."

He adds that wind investors face a further challenge. In many cases, projects that were built in the first wave of renewables investments in the countries now only receive market power prices.

“This poses a problem because the assets were designed under completely different circumstances, when the revenues were higher, but also more stable and not exposed to market volatility, but that’s no longer the case,” he says. “This means that for example in some cases you can’t even cover your operational costs or required repairs in the wind farms."

Faced with this situation, the only option for investors to recover their costs is by pursuing cases against the Spanish government in international courts.

Spain has faced 30 claims over its renewable energy reforms, with just two been resolved so far and little consistency. Last January, the Arbitration Institute of the Stockholm Chamber of Commerce found in favour of the Spanish government, but this was reversed this May.

Specifically, London-based asset manager Eiser Infrastructure and its Luxembourg-based subsidiary Energia Solar Luxembourg SARLwon €128m compensation as the International Centre for Settlement of Investment Disputes determined that Spain had violated its international obligations to them by overhauling the subsidies. The case concerned a €935m investment committed to three thermo-solar power plants in Spain in 2007.

However, this does not help Spanish companies. Only overseas investors can file a claim with an international court, and they are a small part of the market.

According to the Spanish investments registry, foreign investments in the energy sector in the country represent around 11% of total foreign investments, with the remaining 89% made up of Spanish investors. This means that for domestic investors, possibilities of costs recovery are small. Spanish companies have no form of appeal in international courts, so their only hope lies in the Spanish court. But this would mean facing long trials and, in some cases, judges chosen because they share views similar to the government's, making the possibility of success even smaller.

With these background, who will be so brave to invest in Spanish renewables now? Indeed, developers are currently finding it difficult to find new investors, and this is not just because of what happened in the past. The current energy regulation, introduced in 2013, has given to the government the power to decide the return that power plants can get and change it.

This has generated uncertainty for investors as well as unattractive returns. As Quiroga says: “Higher risk and lower return… I would be interested in seeing who will be investing in”.

We are too, as Spain is still a long way from its glory days.

After four years of market standstill, the Spanish Government held two renewables auctions, in May and in July, to attract new investors and bring Spain’s wind sector back to its former glory. It is too early to say whether that has been a success.

But what about those who invested in Spanish renewables before that standstill?

Remember, these were the investors hit by a series of retroactive cuts to feed-in tariffs for renewable energy projects, including wind farms, as part of package of austerity measures aimed at helping Spain out of the economic crisis. The first cuts were implemented in 2010 under the Socialist Workers’ Party’s government, and the last in 2013, when the People’s Party’s package of electricity market reforms was approved.

London-based asset management firm Hg Capital was among those investors that bought renewable energy assets, including wind projects, in Spain between 2008 and 2011. We spoke to Luis Quiroga, director of the renewable power team, about what has happened since those cuts were introduced and whether there is any way out for investors.

The prognosis is not good. He says: “Spain is an unusual market as it is the only large market for renewables in Europe that has done drastic retroactive cuts. These retroactive cuts have implied for who invested before them, a loss of equity. Your equity is gone. This means that your assets are now essentially worthless."

He adds that wind investors face a further challenge. In many cases, projects that were built in the first wave of renewables investments in the countries now only receive market power prices.

“This poses a problem because the assets were designed under completely different circumstances, when the revenues were higher, but also more stable and not exposed to market volatility, but that’s no longer the case,” he says. “This means that for example in some cases you can’t even cover your operational costs or required repairs in the wind farms."

Faced with this situation, the only option for investors to recover their costs is by pursuing cases against the Spanish government in international courts.

Spain has faced 30 claims over its renewable energy reforms, with just two been resolved so far and little consistency. Last January, the Arbitration Institute of the Stockholm Chamber of Commerce found in favour of the Spanish government, but this was reversed this May.

Specifically, London-based asset manager Eiser Infrastructure and its Luxembourg-based subsidiary Energia Solar Luxembourg SARLwon €128m compensation as the International Centre for Settlement of Investment Disputes determined that Spain had violated its international obligations to them by overhauling the subsidies. The case concerned a €935m investment committed to three thermo-solar power plants in Spain in 2007.

However, this does not help Spanish companies. Only overseas investors can file a claim with an international court, and they are a small part of the market.

According to the Spanish investments registry, foreign investments in the energy sector in the country represent around 11% of total foreign investments, with the remaining 89% made up of Spanish investors. This means that for domestic investors, possibilities of costs recovery are small. Spanish companies have no form of appeal in international courts, so their only hope lies in the Spanish court. But this would mean facing long trials and, in some cases, judges chosen because they share views similar to the government's, making the possibility of success even smaller.

With these background, who will be so brave to invest in Spanish renewables now? Indeed, developers are currently finding it difficult to find new investors, and this is not just because of what happened in the past. The current energy regulation, introduced in 2013, has given to the government the power to decide the return that power plants can get and change it.

This has generated uncertainty for investors as well as unattractive returns. As Quiroga says: “Higher risk and lower return… I would be interested in seeing who will be investing in”.

We are too, as Spain is still a long way from its glory days.

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Not a member yet?

Become a member of the 6,500-strong A Word About Wind community today, and gain access to our premium content, exclusive lead generation and investment opportunities.