Investors in Spanish renewables split on effect of regulatory overhaul

Investors in Spain’s clean energy sector are split on the impact that the change to renewable subsidies and proposed new regulation will have on their holdings.

Under new rules rolled out last summer the cash-strapped Spanish government ended its feed-in tariff system for renewable energy, in a bid to tackle a €26bn electricity tariff deficit.

Further changes were announced in a draft bill published in April. The proposals put forward include a greater reliance on fossil fuel-generated electricity and a review of renewable subsidies every three years.

Spain’s generous feed-in tariffs, which guaranteed revenues for renewable producers, was heralded by many as one of the most progressive clean energy strategies in the world and had attracted significant investment from global stakeholders.

But the abolition of feed-in tariffs prompted a number of key investors, including the Abu Dhabi sovereign wealth fund, to file lawsuits against the Spanish government, claiming the tariff reduction amounted to wrongful government appropriation.

As further reform is set to be rolled out, other investors are considering their positions.

One has written down the value of its Spanish renewables holdings in its latest interim management statement.

HgCapital Trust, the listed private equity arm of HgCapital, has reduced the value of its holdings in Mercurio, a group of seven solar projects it has held since 2008, and Odina, a portfolio of 34 hydro power plants to which it committed in 2012.

The revaluation of the holdings has reduced the Trust’s April net asset value by £4.6m (€5.7bn) compared with 31 March 2014.

In a statement, HgCapital Trust said: “This valuation is based on the available information and is based on assumptions such as a final enactment of the published draft and a successful debt restructuring negotiation with the lenders to the solar and hydro projects.”

Another investor, which asked not to be named, said it could not discuss the details of its holdings, but was adopting a ‘wait-and-see approach’ until July, when the new tariffs are expected to pass into law. At this point it expects to review its investments, their value, and consider whether the further commitments to renewable energy projects in Spain will be beneficial to its portfolios.

Denham Capital does not have any direct holdings in Spanish renewables, but has interests in assets via a partnership – FRV, a global solar company that develops, builds and operates solar plants.

A spokesman for Denham said there is likely to be a prolonged period of recapitalisation within Spain’s renewable power market, and any opportunities that may exist in the sector are difficult to identify at the moment, as many companies are facing default, or at the very least some financial difficulties.

There could be a glimmer of hope for Spain’s renewable energy producers, however, as some investors prefer to commit to companies which are not counting on government subsidies.

Denham’s spokesman added: “We avoid investing in jurisdictions that subsidise renewable energy producers, as we want them to be able to compete on a level with traditional producers. This is a theme among a number of investors.”

Impax Asset Management, which has holdings in the Spanish solar photovoltaic sector, said it would not comment as the investment is part of its private equity portfolio.

DIF, an independent infrastructure fund manager with a 33% stake in two Spanish solar plants, and Deutsche Asset & Wealth Management, which has holdings in two solar projects and a portfolio of wind farms, were unable to discuss their investments at the time of writing. Claire Wilson