Gia nt Bull Billboard
The government is planning to impose a cap on profitability across all renewable technologies

The Spanish government unveiled a keenly awaited overhaul of the energy sector on Friday, in a move that will inflict sharp financial pain on electricity groups but that will also hit consumers and the state budget.

The reform – which was repeatedly delayed due to fierce lobbying and cabinet splits – aims to tackle Spain’s €26bn tariff deficit, and to remove the legal and financial uncertainty that has blighted the sector in recent years.

The overhaul was a priority for the government of Mariano Rajoy, and a core demand for the International Monetary Fund and the European Commission. Both warned repeatedly that the problems and imbalances that have piled up in the Spanish energy sector act as a severe drag on the economy – and present a potential risk to the country’s already wayward public finances.

Reform will come at a steep price for the Spanish energy sector, including groups such as Endesa, Gas Natural and Iberdrola, with the industry asked to swallow the loss of €2.7bn a year in subsidies and guaranteed revenues. Renewable energy companies will be especially hard hit, and will bear half the total cuts imposed on the private sector.

Spanish energy stocks fell sharply in response, with Acciona, a construction group with a large renewables arm, losing 8.5 per cent of its value.

Widely seen as one of the most urgent economic challenges facing Madrid, the tariff deficit is the product of the steep gulf between the price of energy paid by consumers and the cost of production. The shortfall has been growing at a rate of about €5bn a year.

The €26bn financial hole reflects not least the generous system of subsidies for the renewables sector that was created by the previous government, and which sparked a boom for solar farms and wind parks across the country. Energy experts warn that at least some of these installations will no longer be able to operate profitably under the new regime.

“The measures in this reform are not easy for anyone, but they’re absolutely necessary,” said José Manuel Soria, the minister for industry and energy. Without the government’s reforms, he added, electricity bills for ordinary Spanish consumers would have risen by more than 40 per cent.

End customers will still face a 3.2 per cent rise in the price of energy, Mr Soria said on Friday. The increase, coming in the middle of a brutal two-year recession, is likely to emerge as another electoral liability for a government that is already deeply unpopular.

The increase in energy bills will reduce the annual tariff deficit by €900m, with the government budget also taking a €900m hit. Together with the €2.7bn contribution from the sector, the measures are supposed to eliminate entirely the projected €4.5bn tariff deficit for this year.

The €26bn deficit that has built up since 2005 will be gradually wound down over the next 15 years, the government said.

Unesa, a lobby group that represents the Spanish energy industry, voiced sharp criticism of the plan, saying it imposed an unfair burden on the sector. “These cuts and the regulatory uncertainty that they generate will force the companies of Unesa to drastically reduce their workforce and to rethink their investments in Spain,” the group said.

Get alerts on Spain financial crisis when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article