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 (Real Decreto-ley 17/2021, de 14 de septiembre, de medidas urgentes para mitigar el impacto de la escalada de precios del gas natural en los mercados minoristas de gas y electricidad [1]) was published in the Spanish Official State Gazette (Boletín Oficial del Estado) on 15 September ("RDL 17/21). RDL 17/21 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 (Real Decreto-ley 12/2021, de 24 de junio, por el que se adoptan medidas urgentes en el ámbito de la fiscalidad energética y en materia de generación de energía, y sobre gestión del canon de regulación y de la tarifa de utilización del agua [2]) ("RDL 12/21"). Both sets of rules are intended to mitigate the consequences of rising natural gas prices and greenhouse gas emission rights.
These measures were approved at a time when two bills were referred to the Spanish Congress of Deputies for processing: the Bill to create the National Fund for the Sustainability of the Electricity System (Fondo Nacional para la Sostenibilidad del Sistema Eléctrico) and the Bill to act on the remuneration of non-emitted CO2 in the electricity market.
The new measures go a step further to soften the external impact caused by rapid recovery in non-EU countries and reduce emission rights in the EU, where natural gas and emission rights prices are now three times higher than pre-Covid-19 pandemic levels. Further to such an increase in international prices, the impact of the tariff change occurred on 1 June 2021 needs also to be considered. As a result of the tariff change, 75% of the electricity system charges are recovered via the variable term (término variable) for residential consumers, 60% in the case of other consumers. Also noteworthy is the impact on the Voluntary Price for Small Consumers (PVPC for its initials in Spanish) of the alteration of the operating rules of the daily and intraday electricity markets to bring the supply limits to the European matching limits, as a result of which the 0 and 180 €/MWh limit no longer applies, having been replaced by -500 and 3,000 €/MWh in the daily market.
According to the preamble to RDL 17/21, to "address this situation", which compromises economy competitiveness, the recovery from the health crisis caused by the Covid-19 pandemic, and the achievement of the economy's decarbonisation targets, and which has a negative impact on household economies, particularly on the most vulnerable groups, and in view of the "growing social alarm" and "concern", RDL 17/21 lays down certain measures described as "fully consistent with the national and EU legal framework".
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 17/21 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), with a view to better hedging price and quantity risks and reducing spot market volatility for the benefit of marketers (in particular, those that are not part of groups with marketing and generation businesses based on infra-marginal technologies), consumers (both electricity intensive and small PVPC consumers) and producers (particularly smaller developers), given the "lack of incentive to participate in the forward markets of vertically integrated groups".
Entities required to sell are the dominant operators in the electricity generation market, whereas buyers may be retailers that are not part of any of the 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, after the formula for calculating the price of energy in the PVPC has been updated, the reference retailers. The above measure is believed to be more efficient than other 'more intrusive' measures such as the 'sale of generation assets', guaranteeing the use of a market mechanism such as auctions, the setting of competitive prices and observance of the principle of proportionality (section IV of the Recitals). 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" (article 3). 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. To apply on a transitional basis (during the period between the coming into force of RDL 17/21 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 17/21'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 internalised", 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" (sobreprecio) 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 (ingresos liquidables del sistema) 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".
The Ministry for Ecological Transition and Demographic Challenge published in its website a “clarifying note” addressing some questions raised by the system operator with reference to the application of the reduction mechanism provided for in RDL 17/21. In accordance with the clarifications contained therein, the reduction mechanism:
a) Will apply to hydraulic and thermonuclear facilities as well as to those included in section 2.1 category b) of Royal Decree 413/2014, of 6 June (installations that use as primary energy source one of the following: solar, wind, geothermal, hydrothermal, aerothermal, biomass or bioliquids produced from biomass) with the exception of the following: i) those with an installed capacity equal to or less than 10 MW; ii) those currently under operation and recorded as active in the specific remuneration scheme Registry; or iii) those under the remuneration framework set out in section 14.7 bis of Law 24/2013, of 26 December, of the Electricity Sector and awarded in any of the auctions carried out under such framework.
b) Will not apply to energy covered by a forward contracting instrument (either with physical delivery or subject to financial settlements) executed prior to the entry into force of RDL 17/2021 through a fixed price not indexed to the spot electricity market and in which the contracting parties do not belong to the same group.
3.- To 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 12/21. 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 (Real Decreto-ley 15/2018, de 5 de octubre, de medidas urgentes para la transición energética y la protección de los consumidores.). On paper, the temporary exemption from payment of the levy benefits producers given their consideration as taxpayers, as it enables them to offer more competitive prices for electricity.
4.- Raising by 900 million euros, up to 2,000 million euros, 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 transitory application (during the period between the coming into force of the RDL 17/21 resulting from the electricity system's extra revenue, arising from the mechanism for reducing the excess remuneration of natural gas (2,600 million euros are expected to be received) and from those obtained from CO2 emission allowance auctions.
6.- To temporarily reduce, from the coming into force of RDL 17/21 until 31 December 2021, the rate of the Special Tax on Electricity (Impuesto Especial sobre la Electricidad) from 5.11269632 % to 0.5 %. This is justified by the implementation of Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity. Accordingly, the two minimum taxation levels are set at 0.5 euro MW/h for professional uses (industrial and maritime or rail transport) and 1 euro MW/h for any other uses. Such minimum rates do not apply to certain industrial uses (electro-intensive).
This tax was introduced by Law 66/1997 of 30 December 1997 on Fiscal, Administrative and Social Measures (Ley 66/1997, de 30 de diciembre, de Medidas Fiscales, Administrativas y del Orden Social) to raise the funds required to make up for the removal of the surcharge for the "specific cost assigned to coal mining" and is currently one of the resources of the regional financing system.
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 taking into account 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:
1.- Implementation of a “minimum vital supply” or 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 resort 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 aforementioned limitation, will be recovered in the tariff reviews that take place as from 1 January 2022, subject to the 15% limitation.
