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Shares in most Spanish power companies fell yesterday as the sector was rattled by energy reforms that will hit profitability and which some analysts said left crucial questions unanswered.
Spain, plagued by recession and one of the eurozone’s biggest public deficits, has a €26bn ($34bn) power tariff shortfall created by years of mismatched energy prices and costs.
The government announced a major overhaul of the sector on Friday to reduce a gap between regulated power prices and generation costs by 2.7bn euros a year.
The plan will cut fees charged by companies distributing and transporting electricity, and the state and consumers — through higher bills — will be saddled with the remaining €1.8bn of the €26bn deficit.
But some analysts said it lacked detail and were sceptical about whether it would end up eliminating the tariff deficit.
“The document doesn’t explain how they are going to make the cuts and we are worried about how the cut in renewable energies is going to be made and even in the area of distribution and transport (of energy),” Banco Sabadell said in a note to clients.
The impact on energy companies from the changes was greater than expected and their shares fell sharply on the Madrid stock exchange, extending losses from Friday.
The government will scrap automatic subsidies to renewable power producers and bring in a new system of “reasonable profitability”. Under this regime, the annual profits of renewable power companies such as Acciona and Abengoa will be capped at 7.5% a year initially.
Shares in Acciona and Abengoa were down 7.6% and 0.48% respectively at 1118 GMT.
Distributors such as Iberdrola, Endesa and Gas Natural, whose returns will be initially capped at 6.5% a year, were all also down.
Brokers at Credit Suisse and UBS cut their price targets on Iberdrola, Gas Natural and Endesa in response to the reforms.
JP Morgan said there were a number of risks to the efficiency of the government’s plan including legal challenges.
“Will the courts (including international courts) allow all the revenue changes that we have seen in the last 18 months?” asked the brokerage.
By contrast to other companies, shares in Spain’s grid operator Red Electrica bounced back yesterday, up 2.06% to €39.1 at 1117 GMT after falling 7.54% on Friday, as the market took some relief from the firm’s own estimate on the impact of the reforms.
It said they would hit its regulated revenue by about €100mn in 2013, less than some initial forecasts.
One Madrid trader said he felt the government might have given the company some clearer guidance, allowing it to make its calculations. “That has given visibility after a lack of detail from the government,” he said.
The recession has brought Spain an unemployment rate of 27%, cast many families into poverty and sparked social unrest.
A planned 3.2% rise in electricity bills for about 28mn consumers under the new energy regime can only worsen that hardship. Including this new increase, prices have surged 8% since the centre-right government of Prime Minister Mariano Rajoy assumed power in late 2011.
Some measures came into effect over the weekend, but more detailed changes will have to be first presented to the energy regulator and could take months to be implemented.