A Spanish bonanza of solar power subsidies may hit a serious brake in September as Madrid prepares to curb support, risking squeezed margins for the global industry, say investors and analysts.
ZURICH/LONDON (Reuters) - A Spanish bonanza of solar power subsidies may hit a serious brake in September as Madrid prepares to curb support, risking squeezed margins for the global industry, say investors and analysts.
Spain is an especially bright spot in the Mediterranean "sun belt" and lucrative subsidies have made it easily the fastest growing solar power market worldwide this year, analysts say.
But Madrid has proposed to cap subsidized installations at roughly one third this year's level, which could dent a global industry which is nearly doubling year on year. A final announcement is expected in coming weeks.
Solar panel prices and profit margins could drop dramatically, said Michael McNamara, analyst at U.S. investment bank Jefferies. That depended on whether other countries could replace demand, he said, with Italy one possibility.
"Spain has been a growth engine for the solar industry," said a fund manager who declined to be named.
"If growth was to be capped it could have a significant impact on the industry. This would mean a lot of competition on pricing and that will bring margins down."
In a recent meeting between the government and solar power industry the government had suggested a 300 megawatts (MW) cap but nothing was concrete yet, a Spanish solar power industry source said.
Such a cap, enough to power about 100,000 homes in daylight hours, compared with up to 1,000 MW or more subsidized installations expected this year.
Market expectations had been for a continuing 1,000 MW market in Spain, said McNamara. Madrid's renewable energy department was unavailable for comment on Wednesday.
A loophole has allowed installers to far exceed a current cap, using a 12-month grace period to complete installations and rush through new applications which were granted locally, not centrally.
"Local authorities were more than happy to see a new source of taxable income," said McNamara.
Subsidies are paid per unit of electricity generated by solar panels for 25 years and the latest installation rush has left Spain with a roughly 1 billion euros ($1.57 billion) annual liability, McNamara estimated.
Industry prices and margins were already expected to fall over the next 18 months as a result of new capacity to manufacture the raw material solar-grade silicon. A big Spanish subsidy cut may exacerbate that.
A 300 MW cap would swallow up less than 4 percent of estimated global production in 2009 while Spain accounted for roughly a quarter of demand in 2007 and 2008, estimates Jefferies.
But price falls will have the benefit of bringing solar power closer to parity with conventional power prices and help trigger wider adoption of a renewable energy source which still makes up a tiny fraction of global demand.
Spain's photovoltaic industry association, ASIF, has called for a cap of 480 MW for 2009.
(Reporting by Eva Kuehnen; additional reporting by Anneli Palmen in Frankfurt and Martin Roberts in Madrid; writing by Gerard Wynn; editing by James Jukwey)