Spain’s new renewable energy ‘reasonable return’ law

Out-Law Analysis | 04 Dec 2019 | 12:49 pm | 3 min. read

Spain has passed urgent measures to extend premium rates for renewable energy and responding to the closure of thermal power plants.

Royal Decree-Law 17/2019 (RDL 17/2019) of 22 November came into force on 24 November. On 27 November RDL 17/2019 was unanimously endorsed by all political parties represented at the Permanent Committee of the Congress of Deputies, Spain´s stand-in legislative body while the new Congress of Deputies is being formed.

It introduces a series of measures aimed at guaranteeing a stable regulatory and economic framework to encourage the development of renewable energy generation in Spain.

The main objectives of the new law are:

  • to update certain remuneration parameters of generation plants with a specific remuneration system, including additional remuneration for generation plants located in non-peninsular electricity systems, before the start of the next regulatory period on 1 January 2020;
  • to adopt a new regulation governing access to the network in nodes affected by the closure of coal and thermonuclear power plants and concessions for the private use of water after the closure of these generation plants where new renewable generation projects may offer an alternative.

RDL 17/2019 seeks to mitigate regulatory uncertainty over future revenue from renewable energy production plants; avoiding investment paralysis and enabling a fair transition to clean power in order to meet Spain’s energy goals.

Reasonable return

Reasonable profitability for renewable energy already receiving specific remuneration

Article 1 of the RDL 17/2019 introduces a number of amendments relating to the reasonable cost effectiveness of installations producing electricity from renewable sources:

  • the reasonable return on the remaining regulatory lifetime of installations producing electricity from renewable energy sources is set at 7.09% for the second regulatory period (ie from 1 January 2020);
  • the financial remuneration rate for production activity in non-peninsular electricity systems with an additional remuneration system will be 5.58% for the second regulatory period.

In addition, RDL 17/2019 establishes that the period for reviewing the remuneration parameters of installations producing electricity from renewable energy sources with a specific remuneration system applicable to the second regulatory period will run until 29 February 2020. These parameters will then be applicable from the beginning of the regulatory period, without prejudice to the revisions provided for in Law 24/2019 on the electricity sector (Electricity Sector Act).

Until the adoption of the ministerial order implementing the changes, the generation plants will receive remuneration on account. Payment applications or collection rights resulting from the application will be processed and paid once the order has been adopted.

Extension of reasonable rates of return for older plants

RDL 17/2019 also amends Electricity Sector Act to maintain the existing reasonable rate of return for renewable energy electricity production plants which were already in operation before the passing of Royal Decree-Law 9/2013, of 12 July, which adopts measures to guarantee the financial stability of the electricity system (RDL 9/2013). The reasonable rate of return is guaranteed for the next two regulatory periods.

Schemes can only benefit from these provisions where:

  • where arbitral or judicial proceedings have been initiated, these are withdrawn and discontinued before 30 September 2020 and a certified waiver is provided confirming that proceedings will not be restarted or continued and that the operator will not accept any compensation awarded under any such proceedings.
  • the financial remuneration rate for production activity in non-peninsular electricity systems with an additional remuneration system will be 5.58% for the second regulatory period.

Owners or sponsors who wish to continue or initiate judicial or arbitral proceedings related to reasonable profitability may expressly opt out the special regime and accept the new 7.09% rate. This option needs to be exercised prior 1 April 2020 before the Directorate General of Energy Policy and Mines before 1 April 2020.

If any amounts are however paid to an owner or sponsor as a result of a judgment or award in the context of any compensation proceedings, the 7.398% rate will be automatically revoked effective from – oddly enough – 1 October 2020, and the reasonable return paid to any such plant in excess of the new 7.09% shall be deducted from future payments. The details of such adjustment are yet to be issued by the Ministry of Ecological Transition.

Access and connection permits

RDL 17/2019 introduces a 22nd Additional Provision of the Electricity Sector Act in respect of access and connection rights connected to coal and thermonuclear plants set for closure.

Under the new mechanism, granting access to the grid to new renewable projects in areas affected by the closure of coal or thermonuclear thermal energy plants will be based on the technical and economic benefits, as well as the environmental and social ones, in particular, job creation.

The procedure for granting all or part of the evacuated grid nodes affected by the closure of these types of facilities will be established by the Minister for Ecological Transition, with the prior agreement of the government’s Delegate Commission for Economic Affairs.

Water concessions for private use

RDL 17/2019 also amends the Royal Legislative Decree 1/2001 (Water Act) to incorporate a mechanism for granting new concessions for the private use of water after the extinction of a concession due to the closure of thermal generation facilities. Again, the economic, social and environmental benefits of renewable projects in areas affected by these closures will be assessed.

The uses of water foreseen in these initiatives and projects will prevail over the order of preference provided in the river basin hydrological plan or in the Water Act excluding the use for the supply of population which will always be priority.

Pablo Dorronsoro, Marta Salazar Diaz and Javier Alagón Serrano are energy law experts at Pinsent Masons, the law firm behind Out-Law.