LONDON, July 26 (UPI) -- Steep cuts in renewable energy subsidies and other reforms in Spain's electricity market this week prompted ministers to meet with nervous investors in London.
Amid warnings that the cuts announced July 12 could be a death knell for Spain's once-booming wind and solar power sectors, Spanish Energy Minister Jose Manuel Soria and Economy Minister Luis de Guindos met Wednesday with investors and market analysts to "explain" the profound overhaul of the subsidy system.
The government says the changes are necessary to prevent the country's electricity system from financial collapse after its "tariff deficit" -- the gap between the cost of producing electricity and what it can be sold for -- has reached $34 billion.
The explosive growth of Spain's renewable energy sector in recent years and the once-generous feed-in tariffs paid to wind and solar power producers have taken the lion's share of the blame for the financial hole, and under the reforms announced this week they will see $3.5 billion per year in cuts.
Meanwhile, general tax receipts will pay down $1.2 billion over the deficit each year will electricity rate payers will be on the hook for another $1.2 billion annually.
The Spanish Photovoltaic Union, UNEF, a trade group representing the country's solar industry, claimed the cuts, combined with previous reductions, will translate to a 40 percent decrease in revenue for Spanish PV investors.
Soria, de Guindos and Spanish Secretary of State for Energy Alberto Nadal spent Wednesday in meetings with hedge fund managers and bank economists called by the Goldman Sachs investment bank explaining "how the legislative package provides a framework that ensures the financial stability of the electrical system in the future" and sets up an automatic review system to "prevent the emergence of new imbalances," a government statement said.
The Spanish business newspaper Expansion reported the meetings at the Melia White House Hotel in London lasted three hours, with ministers giving two presentations -- one on the details of the energy reforms and another on the growth prospects of the Spanish economy.
Soria handled the energy reform meetings while de Guindos was in London to put the reforms into the context of the Spain's overall austerity drive and to reassure investors that money already sunk into Spanish infrastructure will be more secure despite the changing of the rules in midstream, the newspaper said.
Ministers have said they had no choice but to institute the reforms to prevent the collapse of the country's energy system, but have come in for heavy criticism from energy companies who have invested billions of dollars in wind and solar power.
UNEF warned the cuts may "lead directly to the bankruptcy of much of the industry," while decrying what it called "a complete absence of dialogue" with the producers during the formulation of the regulations.
"The Spanish photovoltaic sector regards these cuts as retroactive, and as such they again violate the laws of the nation," the group said, adding,
"UNEF considers it outrageous that regulations of this level have been drafted in near-absolute secrecy, without any consensus.
Months of uncertainty over the new policy "has further deepened the severe crisis in the Spanish photovoltaic sector," it said.