The Spanish cabinet has approved a renewable energy bill that will retroactively cap the returns of PV investors.

The controversial changes, first mooted in July 2013, will limit the profits of projects to 7.4% before tax, around 5-5.5% after tax. The cap will be subject to review and could fall further.

It will be retroactively applied from July 2013 onwards and will also be applied to new installations.

“The Royal Decree approved by the Council of Ministers penalises not only the past but also the future,” said Jose Donoso, director general of the trade organisation La Unión Española Fotovoltaica (UNEF).

“With the legal uncertainty that has been created for our country, it will be very difficult in the future to convince investors that come to this area, or only do so with a risk premium that will hurt the competitiveness of technology,” added Donoso.

Despite its approval, a court challenge could still put the new policy at risk. UNEF claims that the changes contradict EU directive 2009/28/EC which guarantees “priority dispatch” to renewable energy sources.

The changes mean that projects that were financed for more than 5.5% will not be able to return a profit within the new policy framework.

Earlier this year the keys to a 10MW plant at a Spanish IKEA outlet were returned to the bank in the wake of the then imminent changes.