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Energy in Spain. Legal Issues – No. 7 (July 2021)
30 de July de 2021
At its session of 1 June 2021, the Council of Ministers approved the bill creating the National Fund for the Sustainability of the Electricity System (FNSSE) with a fourfold objective: a) providing adequate signals to enable the electrification of the economy, b) ensuring the sustainability of the electricity system, c) bringing certainty to investments for energy transition and d) lowering energy bills for households and companies.
The FNSSE is intended to finance and redistribute among all energy players the fixed costs of policies to promote renewable energies, of high-efficiency cogeneration and energy recovery from waste (RECORE). Until now, these costs had been financed exclusively by the electricity sector.
The FNSSE, which is expected to be implemented gradually over five years, will be funded a) by contributions from operators in the energy sectors defined as "obligated parties" (natural gas and electricity marketing companies, wholesale oil product operators, wholesale liquefied petroleum gas operators and direct consumers of the above products), b) from the collection of taxes regulated in Law 15/2012 on fiscal measures for energy sustainability (Ley 15/2012 de medidas fiscales para la sostenibilidad energética) and c) from revenue from CO2 auctions.
Energy sector contributions to the Fund are to be made via quarterly payments in proportion to energy sales. The total collection target and the distribution amongst the different "obligated parties" will be calculated every year on the basis of the estimated sales reported by contributors, after deducting revenue from other sources of financing (taxes or revenue from CO2 auctions).
The FNSSE includes mechanisms to ensure a fair redistribution of income in its implementation, providing for "exemptions" and "compensations" for least adaptable sectors and to avoid double counting in intermediate energy uses.
Specifically, "exemptions" are laid down for electricity consumption intended for storage, agricultural diesel, natural gas for cogeneration and electricity generation, aviation paraffin, diesel and natural gas for navigation and fishing (recreational boats excepted), and the percentage of bio blends in fuels and renewable gases in natural gas.
As for the "bonuses" resulting from the potential indirect costs of the FNSSE on consumers, these are contemplated for professional diesel and for the electro-intensive and natural gas-consuming industry in sectors at risk of "carbon leakage".
The Fund will be managed by the Institute for Energy Diversification and Saving (Instituto para la Diversificación y el Ahorro de la Energía, IDAE).
2.- Initiation of the processing of the preliminary draft bill to take action on the remuneration of CO2 not emitted from the electricity market
The Council of Ministers, in its session of 1 June 2021, approved a resolution authorising the urgent processing of the preliminary draft bill to take action on the remuneration of non-emitted CO2 in the electricity market.
The approved draft bill seeks to change the remuneration system for the electricity production activity of non-greenhouse gas emitting technology production facilities (essentially nuclear and hydroelectric power plants) commissioned prior to the entry into force of Law 1/2005, of 9 March, setting out rules on the greenhouse gas emission allowance trading scheme (Ley 1/2005 de 9 de marzo, por la que se regula el régimen del comercio de derechos de emisión de gases de efecto invernadero) in an amount proportional to the greater income earned by these facilities following the inclusion in electricity prices on the wholesale market of the value of greenhouse gas emission allowances of marginal emitting technologies.
These are generation facilities commissioned before the coming into force of the emission rights market mechanism and which are infra-marginal and non-emitting, i.e. facilities that regularly receive the extra price associated with the CO2 rights acquired and internalised by plants that do emit CO2 when these set the marginal market price. Because these infra-marginal and non-emitting installations do not bear the cost of CO2 and because they were built and commissioned prior to the launch of the emission rights market in 2005, this extra revenue constitutes remuneration for the CO2 not emitted and operators cannot rightfully claim that they were considered when making the decision to invest.
Because of their characteristics and social and environmental conditions, these pre-2005 non-emitting plants are not "contestable" (in that it does not seem likely or viable that new nuclear or large hydroelectric plants will join the market, competing with these and other technologies and pushing down prices). In addition, investment costs associated to these technologies have been largely paid off, as a result of their age and having received regulated payments during the Legal and Stable Framework (Marco Legal y Estable) until 1997, and even afterwards until 2006 (through the Transition to Competition Costs, regulated in the sixth transitory provision of the Law 54/1997 on the Electricity Sector, Ley 54/1997 del Sector Eléctrico), and therefore, as there are hardly any fixed costs to be recovered, income from the market price, once variable costs have been covered, can be considered excessive.
In the Spanish government's opinion, the above reasons warrant regulatory intervention aimed at reducing the over-remuneration of these facilities by the amount corresponding to the remuneration of non-emitted CO2 in the market as a result of the internalisation of the CO2 cost in wholesale market prices.
The proposal does not apply to any post-2005 plants, plants with a regulated remuneration framework, or plants covered by auctions or any current or future investment initiatives. Plants of less than 10 MW are also excluded.
It is estimated that the measure will impact around 85TWh annually, of which 67% corresponds to nuclear generation, 29% to hydro and less than 5% to wind generation.
3.- First Strategic Project for Economic Recovery and Transformation (Proyecto para la Recuperación y Transformación Económica, PERTE) approved
At its meeting of 13 July 2021, the Spanish Council of Ministers declared the development of an ecosystem for the manufacture of electric and connected vehicles a "Strategic Project for Economic Recovery and Transformation", as part of the Recovery, Transformation and Resilience Plan recently approved by the EU institutions and pursuant to Article 8 of Royal Decree-Law 36/2020, of 30 December, enacting urgent measures for streamlining the Public Administration and implementing the Recovery, Transformation and Resilience Plan.
The PERTE envisages a total investment of over 24 billion euros in 2021-2023, with a public sector contribution of 4.3 billion euros and private investment of 19.7 billion euros.
In addition to measures aimed at transforming the electric vehicle industrial chain, the PERTE includes a number of "enabling measures". It is expected that PERTE will result in 250,000 electric vehicles registered and 80,000-110,000 charging points will be deployed by 2023.
4.- Latest developments on access and connection to electricity transmission and distribution networks
The fourth final provision of Royal Decree-law 12/2021, of 24 June 2021, enacting urgent measures in the field of energy taxation and generation, and on the management of the regulatory levy (canon de regulación) and the water-use tariff (tarifa de utilización del agua) ("RDL 12/2021"), has amended Article 19 of Royal Decree 1183/2020, of 29 December 2020, on access and connection to electricity transmission and distribution grids, introducing additional socio-economic and environmental criteria to be considered in any capacity tenders (concursos de capacidad) that may be called in respect of certain transmission grid knots ("RD 1183/2020"). These are:
1º) Socio-economic impact on the area and its population, which shall be assessed using an objective and quantifiable methodology in accordance with the following criteria:
i) direct jobs generated in local and nearby municipalities, during the process of construction and commissioning of the generation and/or storage facilities, including when these become operational;
ii) indirect jobs generated in local and nearby municipalities, during the process of construction and commissioning of the facilities, including when these become operational. It should be specified which sectors are compatible with or likely to benefit from the development of the relevant project;
iii) economic impact on the local, regional, national and community industrial value chain, measured in terms of investment in services and goods acquired for the implementation of the generation and/or storage project as a percentage of the total investment in such project;
iv) percentage of participation, measured in terms of investment in the generation and/or storage project by local investors, and by companies and local and regional administrations in the area where the facility is to be located; and
v) presentation of reinvestment mechanisms of any income from the generation and/or storage project in the area where the facility is to be located.
To guarantee payment of any penalties that will apply in the event of non-compliance with the above commitments, tenderers must lodge a guarantee with the Spanish General Savings Deposits (Caja General de Depósitos) for the amount specified in the Ministerial Order announcing the tender for access capacity at a specific node of the transmission grid for new electricity generation facilities that use renewable primary energy sources and for storage facilities. The amount of this guarantee shall be proportional to the socio-economic and environmental criteria applicable to that particular Order.
2º) A score will be established based on the expected degree of environmental impact. For these purposes, regard shall be had to the classification into different zones on the map of “environmental zoning for the implementation of renewable energy: wind and photovoltaic” drawn up by the Secretary of State for the Environment of the Ministry for Ecological Transition and the Demographic Challenge (Secretaría de Estado de Medio Ambiente del Ministerio para la Transición Ecológica y el Reto Demográfico).
A Resolution of the Secretariat of State for Energy was published on Wednesday 30 June 2021 (the "June 2021 Resolution"). The June 2021 Resolution agrees to call a tender for access capacity at the nodes detailed in its annex pursuant to the terms established in RD 1183/2020, of 29 December 2020).
Pursuant to Article 20.5 of RD 1183/2020, access capacity that has been released and/or otherwise becomes available in the aforementioned nodes will be reserved for the tenders to be held as a result of the June 2021 Resolution. Consequently, the temporal priority general criterion set forth in Article 7 of RD 1183/2020 will not apply to these tenders.
5. Moratorium on new applications for offshore wind generation facilities
The third additional provision in RDL 12/2021 establishes a moratorium (i) on new applications for the reservation of wind generation facilities in the territorial sea and (ii) applications for administrative authorisation of offshore wind power generation facilities pursuant to Royal Decree 1028/2007, of 20 June 2007 ("RD 1028/2007"). As a result, from 25 June 2021 until approval by the Spanish government of a new regulatory framework for electricity generation facilities in territorial sea waters, no new applications of the type mentioned in (i) and (ii) above will be accepted as part of the procedure established in Title II of RD 1028/2007.
Applications submitted prior to the entry into force of RDL 12/2021's third additional provision will continue to be processed in accordance with RD 1028/2007.
This moratorium is based on the fact that a new road map on maritime spatial planning (Plan de Ordenación del Espacio Marítimo) and the framework establishing the future roadmap for the development of offshore wind farms and marine energy in Spain are currently being drafted, which will give rise to a new legal framework for offshore wind farm generation facilities and associated area reservation in Spanish territorial sea waters.
6.- Market conditions for the development of renewable energy generation projects in Spain Electricity prices have jumped to their highest level in nearly two decades with prices over €100/MWh. Different factors have contributed to the latest rise in the price of energy: firstly, an increase in demand -as this time last year Spain was in lockdown with many businesses closed-; secondly, the rise in CO2 emission costs; thirdly, the rise in natural gas prices.
In recent weeks there has been an increase in the price of emission allowances on the European market, with prices above €50/ton. This represents a 150% rise compared to last year's value. The quotation of emission rights futures markets indicates that this high-price scenario is set to continue in the future, driven, among other reasons, by greater climate ambition adopted by EU heads of state and government and the announcement of the United States' return to the Paris Agreement.
Natural gas prices have jumped almost 90% this year after a colder and longer than usual winter left storage sites depleted and certain supply constraints have appeared in the international markets.
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ENERGY PRICES (source: www.meff.es) |
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Daily |
Q2/Q3/Q4 2021 |
2022 |
|
|
Futures prices 13 January 2021 (EUR/MWh) |
89,94 |
49 (Q2 2021) |
48,05 (2022) |
|
Futures prices 24 April 2021 (EUR/MWh) |
57,31 |
65,20 (Q3 2021) |
55,85 (2022) |
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Futures prices 30 July 2021 (EUR/MWh) |
95,37 |
102 (Q4 2021) |
73,45 (2022) |
Spain’s Government will cut VAT tax on electricity bills from 21% to 10% until the end of the year to provide relief amid rising energy prices for certain consumers (households and small businesses, those with contracted power capacity of up to 10 KW). The government will also suspend the 7% tax on the value of electricity generation -usually passed on to the retail market price by utilities- during the third quarter of the year.
