On 4 November 2020 Royal Decree 960/2020 of 3 November on the renumeration scheme of renewable energies for electricity production facilities (“Royal Decree 960/2020”) was published, which basically sets out the legal framework governing future auctions of renewable energy facilities.

Royal Decree 960/2020 has been published within a context in which renewable energy projects with access and connection have a capacity of 69.7 GW (15.8 wind power and 53.9 solar power) and with access and without connection a capacity of 51.5 GW (14.9 wind power and 36.6 solar power)[1].

In addition, Royal Decree 23/2020 offered a window of up to 25 September 2020 in which to withdraw access and connection guarantees without the risk of their enforcement, and set out various administrative milestones, the first of which (to be satisfied before 25 December 2020) is the application for and acceptance of the prior administrative authorisation.

It is clear that irrespective of the uncertainty that exists regarding the number of projects with access and connection that will not be built for various different reasons (failure to satisfy the administrative milestones, lack of financing or their low profitability), the number of projects with access and connection points exceeds the demand for the start-up of projects for forthcoming years.

Of the Preamble to Royal Decree 960/2020 the following principles (more programmatic than legal) are worthy of note in particular. The auction mechanism (i) enables developers to have access to financing for renewable energy projects, bringing greater certainty in respect of their future revenues, (ii) compensates for the fact that electricity forward markets in Spain do not currently have either the liquidity or depth necessary for offering an alternative buyer for the renewable energy produced, and (iii) allows the price of energy to be reduced indirectly.

It should be noted that Royal Decree 960/2020 must be specifically implemented by means of a ministerial order and a specific decision for each auction, although by itself it contains a fairly specific and detailed framework of the arrangements applicable to the auctions.

The main aspects of the arrangements applicable to the auctions are as follows:

(·) Any facilities that are the result of a new investment or that are an extension or modification of an existing facility (logically in this latter case the price awarded will only apply to the extension or modification) may participate in the auctions.

(·) The auctions may establish an exemption for small-scale facilities, by which is meant those facilities with an installed capacity of less than 5 MW.

(·) The product to be auctioned will be installed capacity, electricity or a combination of both and the “bid variable” will be the price per unit of electricity expressed in  Euros/MWh.

(·) Confidential clauses may be included, including a maximum price called a reserve price and a minimum price called a “risk price”.

(·) The product volume awarded to the same company or business group may not exceed 50% of the total volume of the auctioned product. A reduction in such percentage may be established in the order governing the auction mechanism.

(·) A schedule of auctions will be set, which will consist of a minimum period of 5 years, indicating approximate time frames, the expected capacity and the envisaged technologies. Some sources suggest that the first auction could be held in the first quarter of 2021 for approximately 5,000 MW.

(·) The awarded parties will be allocated a “minimum auction energy” that they will be required to reach within a period of 10 to 15 years (extendable to 20 years in exceptional cases) and a “maximum auction energy” (if the product to be auctioned is electricity, both amounts will be the same). If the facility does not reach the minimum volume of energy or it opts out of the scheme penalties may be imposed.

(·) The price to be received for the energy will be the auction clearing price, which may be increased by the difference between the market price and the auction clearing price multiplied by a percentage up to 0.5.

(·) A “collection exemption price” may be established (i.e., the price at which the owner of the facility bears the market risk). This is set in Royal Decree 960/2020 at zero Euros/MWh, but for specific auctions it may be set at a higher price.

(·) The market operator will be responsible for the settlement of the positive or negative difference between the market price and the auction clearing price.

(·) The ministerial order may establish milestones that must be satisfied before the construction of the projects that ensure their viability.

(·) It will be necessary to provide financial guarantees for the amount established in the order governing the auction mechanism.

(·) A distinction is made between an availability cut-off date of the facility and a date of exclusion from the remuneration scheme, which will be at least four months after the availability cut-off date. If the date of exclusion is not reached, the guarantees will be enforced in full, whereas if the operation of the facility takes place between the availability cut-off date and the exclusion cut-off date, the guarantees will be enforced partially on the basis of the delay in respect of the availability cut-off date.

(·) The requirements that may be included in the order governing the auction mechanism may include, among others, the positive impact on local employment and the industrial benefits for the region.