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Energy in Spain. Legal Issues – No. 8 (December 2021)
03 de March de 2022
1.- Urgent energy measures adopted by the Spanish Government to deal with the increase in the prices of natural gas, CO2 emission rights and electricity
In recent months, several urgent legal measures have been adopted by the Spanish Government to deal with the increase in the prices of natural gas, CO2 emission rights and electricity. These measures are briefly described below:
A) Royal Decree-Law 17/2021, of 14 September, on urgent measures to mitigate the impact of rising natural gas prices on the retail gas and electricity markets, was published in the Spanish Official State Gazette on 15 September. It lays down measures in addition to those set forth in Royal Decree-Law 12/2021, of 24 June, adopting urgent measures in the area of energy taxation and energy generation, and on the management of the regulation levy and the water use tariff. Both sets of rules are intended to mitigate the consequences of rising natural gas prices and emission rights.
The new measures, described as “fully consistent with the national and EU legal framework”, go a step further to soften the external impact caused by rapid recovery in non-EU countries and reduce emission rights in the EU.
With the aim of “softening the sharp rise in electricity prices” or attempting to “immediately curb the effect that the increase in electricity prices is having on other sectors of the economy”, RDL 17/2021 is intended to:
1.- Encourage forward contracting of part of the infra-marginal, manageable, non-CO2 emitting production by introducing ‘coercive instruments’ (auctions of long-term power purchase contracts).
Entities required to sell are dominant operators in the electricity generation market, whereas buyers may be retailers that are not part of business groups whose parent company qualifies as the main operator in the electricity sector, and which have a portfolio of electricity customers, direct consumers in the market (large consumers) or their representatives and reference retailers. The above measure is believed to be more efficient than other 'more intrusive' ones (such as the 'sale of generation assets') guaranteeing the use of a market mechanism such as auctions, the setting of competitive prices and the observance of the principle of proportionality.
The production associated to these auctions will represent “no more than 25% of the lowest annual energy value generated over the last ten years from manageable infra-marginal and non-emitting facilities that do not receive specific remuneration and have not been awarded in renewable energy development auctions”, although required operators “may request that their bid be higher than the mandatory bid”.
Pursuant to the second additional provision the first auction will be held before 31 December 2021, with a total of 15,380.08 GWh of energy to be auctioned, to be distributed among the obligated sellers (Endesa Group, Iberdrola Group, Naturgy Group and EDP Group).
2. Apply on a transitional basis (during the period between the coming into force of RDL 17/2021 on 16 September 2021 and 31 March 2022) a mechanism to reduce the ‘excess remuneration’ that non-emitting production facilities situated on Spain's mainland (whatever their technology and contracting method - including those selling their production outside the day-ahead market via bilateral agreements, production in respect of which Paragraph V of the RDL 17/2021's preamble states that “all of it is internalising the opportunity cost of selling it on the day-ahead market, where the cost of natural gas is internalized”, excluding facilities with a net power equal to or lower than 10 MW or facilities with a specific remuneration system) would be receiving “as a result of the marginalist operation of the market”, given the “exceptional circumstances of the commodities markets”.
According to Article 4, the reduction consists of an “amount proportional to the increased revenue obtained by such facilities from the inclusion into electricity prices on the wholesale market of the value of the price of natural gas by marginal emitting technologies”. The reduction is the amount of electricity output multiplied by the ‘surcharge’ obtained between the difference of the average spot price of natural gas in a given month for MIBGAS and the average price of MIBGAS since its implementation in 2017, which is determined at EUR 20 MW/h, weighted by the degree of internalisation of the price of natural gas when setting the marginal price of the market.
Facility owners must make any payments due for the reduction no later than one month of the notification from the system operator to this effect, which must be made by the 15th day of each month in respect of the previous month.
Any amounts paid by the owners of obligated installations are regarded as “quantifiable system revenues and will be used to pay the costs financed by the electricity system charges (...) and to cover, where appropriate, temporary mismatches between system revenues and costs” (article 9).
The fifth additional provision provides for an ‘adjustment’ of any amounts payable by the parties required to sell energy on a forward-looking basis as a result of the above reduction and the reduction resulting from applying the legislation on the remuneration of non-emitted CO2 , for the portion proportional to the energy subject to forward contracting, “provided the auction prices differ, upwards or downwards, by more than 10% of the arithmetic mean of the daily market price in the delivery period”.
3.- Extend for an additional quarter the temporary suspension of the tax (up to 7%) on the value of electricity production expected for the third quarter of 2021 in Royal Decree-Law 12/2021. This measure is similar to that used in Royal Decree-Law 15/2018, of 5 October, on urgent measures for energy transition and consumer protection.
4.- Raise by 900 M EUR, up to 2,000 M EUR, the amount initially set aside by Law 11/2020, of 30 December, on the General State Budget, to finance the costs of the electricity system related to the promotion of renewable energies with a charge to the increased revenue obtained as a result of higher CO2 emission allowance prices, to meet system charges as a result of the temporary suspension of the tax on generation.
5.- Update downwards the electricity system charges for their transitory application (during the period between the coming into force of RDL 17/2021 on 16 September 2021 and 31 December 2021) as a consequence of the electricity system's extra revenue arising from the mechanism for reducing the excess remuneration of natural gas (2,600 M EUR are expected to be received) and from those obtained from CO2 emission allowance auctions.
6.- Temporarily reduce (from the coming into force of RDL 17/21 on 16 September 2021 until 31 December 2021) the rate of the Special Tax on Electricity from 5.11269632 % to 0.5 %. Accordingly, the two minimum taxation levels are set at 0.5 EUR MW/h for professional uses (industrial and maritime or rail transport) and 1 EUR MW/h for any other uses. Such minimum rates do not apply to certain industrial uses (electro-intensive).
This measure adds to the measure implemented in July involving a VAT reduction from 21% to 10% for electricity consumers with a contracted power of less than 10 kW, as long as the wholesale electricity market is above 45 €/MWh.
7.- Limit the right of water concessionaires for electricity generation to their private use by introducing into water laws new "criteria for the rational use of water resources" applicable to reservoirs with a total capacity of more than 50 hm3 not mainly used for water supply, irrigation or other agricultural and livestock uses. By virtue of these criteria and considering the reservoir water reserve and seasonal forecasts, at the beginning of each hydrological year the basin authority will set various hydrological variables (minimum and maximum regime of average monthly flows to be released in different situations, regime of minimum volumes of reservoir reserves for each month, minimum monthly reserve to remain in storage for environmental purposes).
In addition to the measures intended to address the increase in the price of electricity, RDL 17/21 contemplates various specific measures to protect certain groups of consumers:
1.- Implementation of a ‘minimum vital supply’ for vulnerable consumers in receipt of the social electricity voucher. This measure is extended by an additional six months to the four-month period provided for in current legislation to enable vulnerable consumers to pay their electricity bill, ensuring that their supply is not interrupted. During this new period, a power level will be set to guarantee minimum comfort conditions for households covered by this measure.
2.- Transitory restriction (as from 1 October and for two quarters) of the maximum increase in the cost of the raw material included in the last resource tariff for natural gas (35% in the tariff applicable from 1 October and 15% in the review from 1 January 2022). The increase in the cost of the raw material that remains to be passed on to the tariff, resulting from the difference between the cost of the raw material calculated in accordance with the current methodology and that resulting from the application of the limitation, will be recovered in the tariff reviews that take place as from 1 January 2022, subject to the 15% cap.
B) Royal Decree-Law 23/2021 of 26 October on urgent energy measures to protect consumers and introduce transparency in the wholesale and retail electricity and natural gas markets, was published in the Spanish Official State Gazette on 27 October. The regulation aims to mitigate the unwanted effects of price hikes on end consumers, especially those in a situation of energy vulnerability. The measures adopted are as follows:
1.- Increase, until 31 March 2021, of the discounts of the ‘electricity social voucher’ (from 40% to 70%, in the case of severely vulnerable consumers, and from 25% to 60%, for vulnerable consumers).
2.- Improvement of the protection of the beneficiaries of the ‘thermal social voucher’ for the financial year 2021.
3.- Increase in the budget availability of the ‘thermal social voucher’ (from 102.5 to 202.5 M EUR) for the financial year 2021.
4.- Promotion of transparency and supervision in the wholesale and retail electricity markets by amending Law 24/2013 on the Electricity Sector in order to a) recognise consumers' right to be duly informed of any price increase in a transparent and comprehensible manner; b) impose on marketers the obligation to publish transparent, comparable, adequate and updated information on the prices applicable to all offers available at any given time; c) establish the obligation of electricity producers and marketers to provide information corresponding to the electricity forward contracting instruments, both physical and financial, that they have subscribed to; d) establish the obligation for marketers to make available to the competent authorities, for at least five years, data on all transactions in electricity supply contracts and electricity derivatives entered into with wholesale customers and transmission system operators.
5.- Promotion of transparency and monitoring in the retail natural gas market, establishing the obligation for gas marketers to a) publish supply prices for consumers with an annual consumption of less than 50,000 kWh and, in the case of time-limited offers, the obligation to specify resulting prices after the end of the offer periods and b) provide consumers with more information on any price increases on supply contracts, as well as a reasonable minimum notice period of one month.
6.- Clarification of the scope of application of the mechanism for reducing excess remuneration in the electricity market, regulated by RDL 17/2021. Specifically, it is indicated that the reduction mechanism will not apply to energy produced by generation facilities covered by forward contracting instruments (with both physical delivery and financial settlement during the period of validity of the reduction mechanism) entered into prior to the entry into force of Royal Decree-Law 17/2021, when the cover price is fixed, or after this date, provided that the cover price is fixed and the cover period is greater than one year. If the forward contracting instrument incorporates a partial indexation to the prices of the peninsular wholesale electricity spot market, only the equivalent energy of the non-indexed part of the contract is excluded from the reduction.
2.- Royal Decree-Law 29/2021, of 21 December, adopting urgent measures in the energy field to promote electric mobility, self-consumption, and the deployment of renewable energies.
On 22 December, Royal Decree-Law 29/2021 of 21 December was published in the Official State Gazette (BOE), adopting urgent measures in the energy sector to promote electric mobility, self-consumption, and the deployment of renewable energies. The purpose of the regulation is to remove certain regulatory barriers that prevent or hinder a rapid deployment of electric mobility, self-consumption or innovative renewable energies, all with the aim of enabling the effective and diligent implementation of the funds of the Recovery, Transformation and Resilience Plan (PRTR) and the achievement of the objectives set out in the Strategic Framework for Energy and Climate and, particularly, facilitating the application and deployment of the lines of action included in the Strategic Project for the Recovery and Economic Transformation (PERTE) of Renewable Energies, Renewable Hydrogen and Storage approved by the Spanish Council of Ministers at its meeting of 14 December 2021.
Royal Decree-Law 29/21 includes the following measures:
1.- Measures to encourage investment in electricity generation (in order to free up grid access capacity and administrative resources for the processing of more mature and viable projects):
- Deadlines available to holders of access permits to prove compliance with the intermediate milestones referred to in Article 1 of Royal Decree-Law 23/2020, of 23 June, approving measures in the field of energy and other areas for economic reactivation (obtaining the environmental impact statement, prior administrative authorisation, and construction authorisation) are extended for an additional nine months period. The total period of five years for reaching the final milestone of obtaining the administrative authorisation to operate is maintained.
- Holders of or applicants for access permits and, where applicable, connection permits are authorised to renounce their permits within one month of the entry into force of the Royal Decree-Law (until 22 January 2022).,Any financial guarantees made by permit holders and/or applicants are to be returned.
2.- Measures aimed at promoting the self-consumption of electrical power:
- Royal Decree 244/2019, of 5 April, which regulates the administrative, technical and economic conditions for the self-consumption of electrical energy, is amended to make collective self-consumption through the grid possible in those cases where generation and consumption are connected at a distance of less than 500 metres, irrespective of the voltage level at which they are connected.
- Royal Decree 1183/2020, of 29 December, on access and connection to the electricity transmission and distribution networks, is amended to exempt electricity generation facilities of less than 100 kW associated with any of the modalities of self-consumption with surpluses from the obligation to provide financial guarantees, unless they form part of a group whose power is greater than 1 MW.
- Law 24/2013, of 26 December, on the Electricity Sector, is amended to introduce a new obligation for grid operators to have open information channels for submitting complaints, dealing with queries and obtaining information relating to grid access files for self-consumption facilities.
- The system of infringements and penalties applicable to self-consumption is updated, creating specific types.
3.- Measures aimed at facilitating the deployment of recharging points:
- The authorisation of recharging points between the outer edge of the public domain area and that of the area limiting buildability of roads owned by the General State Administration is facilitated, provided that road safety or the proper operation of the road is not undermined, and the use of the easement area is not compromised.
- The specific obligations and deadlines for the installation of high-capacity recharging points contemplated in Article 15 of Law 7/2021, of 20 May, on Climate Change and Energy Transition, which are the responsibility of state road concessionaires with contracts in force at the time Law 7/2021 becomes effective and which include facilities for the supply of vehicle fuels, are established.
- The system of prior licences or authorisations (for works, installations, operation or activity, environmental or other similar matters) for the establishment of recharging points is replaced by a mechanism of responsible declaration.
- New requirements are established in terms of minimum electric vehicle recharging infrastructure in existing buildings used for purposes other than private residential use and which have a parking area with more than twenty spaces or in existing car parks not attached to buildings with more than twenty spaces.
- Local entities are allowed to apply tax rebates of up to 50% in the Real Estate Tax (IBI), 90% in the Construction, Installations and Works Tax (ICIO) and 50% in the municipal quota in premises used for economic activities in the event of installation of charging points for electric vehicles.
- New infringements are established to ensure compliance with the deadlines for enabling grid connection by distribution companies and with the obligations for the deployment of recharging points by the owners of service stations supplying vehicle fuels.
4.- Measures aimed at reducing the costs of the final electricity and natural gas bill:
- Royal Decree-Laws 12/2021 and 17/2021 established the temporary suspension of the tax on the value of electricity production for the second half of 2021. Royal Decree-Law 29/21 has now extended the temporary suspension of this tax until the end of the first quarter of 2022 ().
- The application of the reduced rate of 10% Value Added Tax (VAT) on all components of the electricity bill for contracts whose fixed power term does not exceed 10 kW when the average monthly wholesale market price in the month prior to the billing month has exceeded 45 €/MWh is maintained until 30 April 2022.
- The application of the 10% VAT tax rate is extended for supplies made to electricity supply contract holders in receipt of the social voucher and qualify as severely vulnerable consumers or severely vulnerable consumers at risk of social exclusion, during the period of validity of the Royal Decree-Law, regardless of the price of electricity on the wholesale market.
- The minimum tax rates for the Special Tax on Electricity (a measure introduced by Royal Decree-Law 17/2021) are maintained for the first four months of 2022.
- Measures are also envisaged to make natural gas contracting more flexible. Companies that need to reduce their production will be able to alter or suspend the contracted flow to supply natural gas until 31 March 2022.
5.- Other measures applicable to the energy sector:
- The concept of "fully integrated network components" is introduced into the Spanish legal system. This concept refers to network components integrated into the transmission or distribution network, including storage facilities, which are used for the sole purpose of ensuring a secure and reliable operation of the transmission or distribution network, as opposed to balancing or congestion management purposes..
- The regulation of certain projects with a high experimental and innovation component (in particular, certain offshore wind generation facilities and regulatory test beds) is improved.
3.- Second auction for the awarding of the renewable energy remuneration scheme (REER)
Pursuant to the Resolution of 20 October 2021, of the Directorate General for Energy Policy and Mines, the second auction for the granting of the renewable energy remuneration scheme (REER) has taken place and has been resolved.
Called on 8 September, 3,300 MW were auctioned, of which 600 MW were allocated to accelerated availability wind and photovoltaic installations, 700 MW to photovoltaic technology, 1,500 MW to wind technology and 300 MW to local distributed generation photovoltaic installations. The remaining 200 MW were part of a technology-neutral auction.
With the participation of 61 agents, who submitted more than 5,100 MW to the auction, 3,123.77 MW were awarded, of which 865.77 MW corresponded to photovoltaic technology and 2,258 MW to wind technology. In addition, of the total photovoltaic technology capacity, 21.95 MW must be available before 30 September 2022 and 5.75 MW must meet certain requirements to favour distributed and local generation. Wind power technology has been the successful bidder for unallocated power in the minimum reserves.
The average weighted prices resulting from the auction (to be received by the successful bidders in the course of 12 years) were 31.65 EUR/MW/h for photovoltaic technology (general) and 30.18 EUR/MW/h for onshore wind power.
4.- Approval of the Strategic Project for the Recovery and Economic Transformation (PERTE) of Renewable Energies, Renewable Hydrogen and Storage.
On 14 December 2021, the Spanish Council of Ministers approved the Strategic Project for the Recovery and Economic Transformation (PERTE) of Renewable Energies, Renewable Hydrogen and Storage.
This is the third PERTE released by the Spanish Government, following after the Electric and Connected Vehicle Project and the Vanguard Health Project.
The third PERTE comprises 25 "transformative measures" in certain areas, including innovative renewables, storage, flexibility and new business models, renewable hydrogen, just transition and the national science, technology and innovation system, with a public investment of 3559 M EUR from the budget of the Ministry for Ecological Transition and a planned private investment of 5390 M EUR. The third PERTE also includes 17 "enabling measures" in 4 areas of action (energy transition, mobility with renewable gases, skills, vocational training and employment and technological and digital area) with a public investment of 3362 M EUR from the budget of other Ministries and an expected private investment of 4060 M EUR.
Financial support will be granted through competitive calls, with the first calls (boosting the renewable hydrogen value chain, pioneering renewable hydrogen projects, R&D projects in energy storage and pilot projects for energy communities) scheduled to take place in 2022 and the rest in 2023. Projects are expected to be executed progressively until 2026.
5.- Draft Royal Decree on Foreign Investments
Between 17 and 25 November 2021, the Secretary of State for Trade (Ministry of Industry, Trade and Tourism) completed the public information process for the draft Royal Decree on Investments in Spain, a regulation implementing Article 7 bis of Law 19/2003 of 4 July 2003, introduced by Royal Decree-Law 8/2020 and subsequently amended by Royal Decree-Laws 11/2020 and 34/2020, which suspended the liberalisation of certain foreign investments in Spain as a result of the situation generated by the Covid 19 crisis, in line with the provisions of Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 on the control of foreign direct investment in the Union.
Article 14.1.a) of the draft Royal Decree provides for an exemption for foreign direct investments made in the energy sectors (those regulated in Law 24/2013 of 26 December on the Electricity Sector and Law 34/1998 of 7 October on the Hydrocarbons Sector), regardless of the amount of the investment and provided that the investor is not controlled by foreign governments or suspected of illicit activities. In addition, the following conditions must be met:
1) Acquired companies or assets must not carry out regulated activities. These are activities related to the operation of the electricity system and market, the transmission and distribution of electricity, the supply of electricity in non-mainland territories, the technical management of the gas system, and the regasification, basic storage, transmission, and distribution of natural gas, in addition to any other activities established by the applicable sectoral legislation.
2) The transaction must not result in the company acquiring the status of dominant operator in the sectors of electricity generation and supply, production, storage, transport and distribution of fuels or biofuels, production and supply of liquefied petroleum gases or production and supply of natural gas, under the terms regulated in Royal Decree-Law 6/2000, of 23 June, on urgent measures to intensify competition in goods and services markets.
3) When the foreign investment involves the acquisition of electricity production assets, the resulting share of installed capacity by technology (adding together the assets in Spain already controlled by the investor beforehand) must be less than 5%, considering the degree of maturity and execution of the projects according to the state of administrative processing and the renewable energy integration targets set out in the Integrated National Energy and Climate Plan (PNIEC).
4) When the foreign investment involves the acquisition of companies engaged in the sale of electricity, the number of customers of the acquired company must be less than 20,000.
Paragraph 3 of article 7 bis of Law 19/2003 refers to certain investors for which prior authorisation seems to be required regardless of the field to which the investment refers. However, article 13 of the Draft Royal Decree states that such a requirement will only apply when there is a risk to public safety, order, or health. The parties concerned are those controlled, directly or indirectly, by governments of non-EU or EFTA countries, which have made investments or carried out activities related to protected areas in other Member States or which, in themselves, entail a risk of crime or unlawful activity affecting the aforementioned legal assets.
For the purposes of defining "control", the Draft refers to the concept of control pertaining to antitrust law, i.e. the "possibility of exercising decisive influence over the company", expressly adding the possibility of investigating whether this is articulated through significant financing of the investor, including subsidies, by the government of a third country or whether, in the case of investments made by vehicles through public funds, the investment policy is independent and focused exclusively on profitability without the possibility of political influence by a third State.
Article 9 of the Draft Royal Decree regulates the procedure for consulting the Directorate General for International Trade, establishing deadlines, setting out the consequences of the Administration’s failure to respond to any given consultation, and the binding nature of the resolution of the consultation for the Administration.
6.- Requirements for the implementation of renewable energy generation projects in Spain
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ENERGY PRICES (source: www.meff.es) |
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|
Daily |
Q3/Q4 2021 / Q1 2022 |
2022 |
|
|
Futures prices 24 April 2021 (EUR/MWh) |
57.31 |
65.20 (Q3 2021) |
55.85 (2022) |
|
Futures prices 30 July 2021 (EUR/MWh) |
95.37 |
102 (Q4 2021) |
73.45 (2022) |
|
Futures prices 30 July 2021 (EUR/MWh) |
383.67 |
399 (Q1 2022) |
306 (2022) 122 (2023) 77 (2024) 64 (2025) |
Electricity prices continue to escalate, which originated from gas prices rise and was originally meant to be temporary and seasonal.
Supply problems and post-covid increased demand have resulting in a price rise. However, this rise is proving to be much higher and longer than expected. The above table shows that the derivatives are at 306 EUR/MWh in 2022, 122 EUR/MWh in 2023, 77 EUR/MWh in 2024 and 64 EUR/MWh in 2025.
In the European context there are other countries with higher prices than those of the Spanish market, including France with 416 EUR/MWh, or Switzerland, with 403 EUR/MWh.
Rising prices, their inflationary effects and the stagnation of economic recovery have led governments to adopt measures aimed at reducing the price of energy.
One of the options explored by the Spanish Government has been trying to split the price of energy into “marginal” and “infra-marginal” so that the EU marginalist price system, in which the most expensive energy sets the total price, does not imply a generalised rise in the price of energy (associated, for example, to maximum gas prices). However, this proposal implies a profound overhaul of the European pricing system, which countries such as Spain, France and Italy could agree on, whilst others such as Germany, the Netherlands and the Nordic countries oppose.
Simultaneously, the Spanish Government has adopted or extended various measures to curb the impact of the wholesale market price and to promote mobility and self-consumption (see above).
In this sense, the reduction of VAT from 21% to 10%, the reduction of the electricity tax from 5.11% to 0.5%, extended until the end of April, and the abolition of the 7% generation tax until the end of March have been extended in view of the record prices of energy. Thus, the price of energy is now 7 times higher than a year ago this time (when it averaged around 50-60 EUR per MWh).
New self-consumption legislation also results in more favourable criteria with economic improvements in the conditions of the projects, and aims to eliminate barriers and administrative procedures for the development of renewable energies.
Apart from the local or European measures adopted, there are geopolitical factors that influence the rise in prices and their maintenance. For Spain, these include the closure of France's generation capacity for safety reasons with respect to its nuclear power plants, which means that the transfer of interconnections with this country is at its maximum, which also has an impact on electricity demand in Spain, thus pushing up prices.
