By Yoram Gabison

Solar energy company Sunflower Sustainable Investments and Shikun & Binui are feeling the European debt crisis, after the Spanish government backed out of sweetheart terms for solar power.

Sunflower will write down NIS 16 million of its investment in the Olmeda photovoltaic power project in Spain. Shikun & Binui and Sunflower each own 50% of the project.

The writedown is based on a valuation by an outside appraiser, which the company ordered after Spain’s national energy commission canceled special rates for the electricity generated by the project. The commission claimed the project had not fulfilled all the conditions required to receive higher rates. The higher rate is 47.02 euro cents per kilowatt-hour, which was to be reduced by between 0.25% and 0.5% annually. This tariff was supposed to be in effect for 25 years.

The Olmeda project includes 63 units of photovoltaic panels spread out over 170,000 square kilometers, providing maximum power of almost 7 megawatts. Olmeda is about 150 kilometers east of Madrid. Some 50 million euros were invested in the project, which was hooked up to the Spanish electric grid in 2008.

The project was expected to produce around 9.8 gigawatts annually, which translates into annual revenues of 4.6 million euros on average over the life of the project. In 2010, revenues were 4.8 million euros, with an operating profit of 4.3 million euros and a return on equity of 10.23%.

The price for the electricity is much higher than that paid for conventionally generated power. But in Spain, as opposed to many other places in Europe, consumers don’t pay a higher price for alternative energy. Instead, the Spanish government subsidizes alternative energy from its budget.

The worsening debt and budget crisis in Spain caused the Spanish government to change its policy for alternative energy subsidies in an attempt to save money. The Spaniards imposed a 50-cent tax per megawatt-hour fed into the national grid, and retroactively limited the amount of electricity to be bought at the higher rate to a period of three years starting in January 2011. As a result, the valuation conducted in the fourth quarter of 2010 by Israeli economic consulting firm Giza Singer Even lowered the value of the project by NIS 6.6 million.

Biram, Sunflower’s chairman, and CEO Orly Kyram said Spain’s energy commission determined that the construction contractor’s engineer signed the completion document for the project two months before the actual completion, in July 2008. This excuses the commission from paying the higher rates, the Spaniards said.

Sunflower will be allowed a hearing with the Spanish Energy Ministry, and will receive a final answer by August 6. If Sunflower’s appeal is turned down, it may have to write down the remaining value of the project: 18.5 million euros.

This could leave Sunflower exposed to the German bank that lent it the money for the project, which could demand some of the loans back.