European Energy emerges unscathed from Spanish nightmare

The developer's five solar farm sales add DKK 373 million (EUR 50 million) to European Energy's books. However, as these were acquired back in 2008, the company had hoped for more.

En af European Energys forkætrede spanske parker, som med nød og næppe gav et mindre overskud. Photo: PR / European Energy

Project developers flocked to Spain in 2008 like beach tourists to set up solar farms at breakneck speeds and exploit one of Iberia's prime resources, the sun, as well as to take advantage of favorable tariffs relative to investments.

"One could get something like DKK 3.5 (EUR 0.47) per kWh. That was very, very lucrative, and the tariff applied for a 20-year term that corrected for inflation and so on and so forth. Those were very favorable conditions," says Danish developer European Energy Chief Executive Knud Erik Andersen.

European European was naturally also inclined to join the sunny party and built six Spanish solar farms with a combined capacity of 10.1 MW. The fiesta shut down early, though, and the dream turned into nightmare.

The subsidy scheme was namely financed via Spain's annual state budget, and as the country's solar capacity exploded from next to nothing to roughly 3,355 MW between 2007 and 2008, Madrid began to see that its budget would be overstretched for the next 20 years.

It ended with Spain's politicians hollowing out the deal in several instances in 2009, 2010 and 2011 – five interventions in total, with each one impacting profits.

"When we acquired the facilities, it looked like the farms were very, very, very profitable, And these became less and less profitable with each mediation. If the scheme had run its initial course as it was when we bought the installations, it would practically keep the entire shop running. That profit ended up becoming quite a bit smaller," Andersen says.

Today, European Energy announced in connection with the release of a profitable first half-year interim report that it has offloaded the Spanish solar farms it bought in 2008. The facilities were sold for approximately EUR 50 million.

The solar farms did in fact turn a profit – but only because of a series of optimizations, Andersen says.

Lack of confidence

But Spain's government was not at all finished. On multiple occasions between 2009 and 2011, the aid was retroactively repealed. And so Spain's solar boom vanished from the earth just as fast as it appeared.

From 2008-'18, only 1.4 GW in solar was installed in the country. That's less than half the volume built in 2007-'08.

Once bitten, twice shy – and European Energy forfeited quite the chunk of flesh with the solar farms, as did other project developers that leapt without looking twice into the bullish Spanish solar market.

"We sold the facilities, because we were contacted by a buyer, and we really wanted to try it. A sale hadn't previously been under consideration because of Spain's reputation having made that almost unfeasible. It would have been similar to trying to sell a polluted plot without having any knowledge of about the actual toxin. If we has attempted a sale, buyers would have only asked: There have now been five modifications, so when does the sixth occur?," Andersen reveals.

However, European Energy is now back in Spain and is at full health. At the same time as the prize pig, which ended up skinned by decimated solar subsidies back from 2008, is being passed on, European Energy is once again beginning to make large investments in the country – a round two, so to speak.

The company expects that its first new wave of Spanish projects will come online in late 2020 or early 2021.

Photo: PR / European Energy

Forgiveness or irrelevance?

As a part of European Energy's granting redemption to Madrid, the Danish developer has opted to drag Spain into court in the Hague for the retroactive subsidy cuts. The litigation will proceed even though the solar farms have found a new home with a new owner.

So, when Andersen says that forgiveness was necessary before the company would return to Spain, that truth should be taken with a few grains of salt.

In reality, it would more likely end up being that developers will head back to Spain, as political support has become irrelevant, and developers will no longer need to extend their begging cups and live off legislative alms in the form of subsidies.

Or, in other words: Solar panels have become so dirt-cheap that the advantage of Iberian sun outweighs the disadvantage of the country tending toward fickleness in its national energy policy. Red Eléctrica de España, a partly state-owned, partly public transmission system operator, says it is currently processing applications for around 109 GW of solar power.

"This is the good news that follows the bad in Spain. The facilities we're building now are unsubsidized. This also tells the story of the raging dynamism surrounding solar panels. When we build a new solar farm in Spain today, the cost of installing 1 MW is 8 percent of the price in 2008. Imagine if other sectors went through a similar development. It's wild," Andersen says, adding that plummeting prices don't tell the whole tale.

"We then built facilities rated around 1-2 MW, and we are now up to 100-200. Seen with the clarity of the present, those were hobby projects that we set up then. Now we're building power plants. So, even though our story from Spain has its downside, we are returning to the market with full confidence."

English Edit: Daniel Frank Christensen

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