In Spain a new Royal Decree Law (1/2012), passed on 27 January 2012, has abolished the economic incentives for new electricity production facilities using co-generation, renewable energy and residual waste. It also freezes the existing special remuneration pre-assignment procedure.

From now on, any new projects will no longer benefit from the special (subsidised) feed-in tariff, the premiums and supplemental remuneration concepts which were provided for under the Royal Decree 661/2007.

The new measures are not applicable to those facilities which are already operating nor to those projects which are registered in the remuneration pre-assignment registry as provided under Royal Decree-Law 6/2009 (or that established in Royal Decree 1578/2008 for photovoltaic plants).

The pre-assignment system as a whole has now been put on hold and all filed applications for registration have been frozen, including those applications for pre-assignment of PV plants under the quarterly quota auctions which had been planned for in 2012. These auctions will no longer take place. The owners of non-registered projects which have posted the bank guarantees required to obtain a grid connection, or those required for the registration of pre-assigned facilities, can claim for the return of such guarantees within two months as from 28 January (being the date of publication of the Royal Decree-Law in Spain's 'Official Gazette').

The new regulations do, however, allow for the Spanish Government to re-introduce economic incentives within the sector in the future, with such a decision to be based on a consideration of the following factors:

  • Installed capacity
  • Level of tension of the electricity output
  • Contribution to the enhancement of the environment (CO2 reduction)
  • Primary energy savings
  • Energy efficiency
  • Economically justifiable production of useful heat
  • Investment and operation cost
  • Type or primary energy used
  • Reasonable rate of return compared to capital market cost

The decree goes on to state the intention of the Spanish Government is to design a new remuneration model which will promote market competitiveness through mechanisms analogous to those used in other European Union States, in order to guarantee the on-going viability of the whole electricity system (within the context of reducing the country's existing financial deficit).

The Royal Decree-Law 1/2012 will mean that the plans of investors, promoters, equipment manufacturers and engineering companies will need to be revised (or in some cases even discontinued). Whilst there was an expectation in the sector that there would be a less favourable remuneration regime, as has been provided for under the draft new Royal Decree on wind generation facilities, it was not anticipated that there would be a total halt to the incentives system.

Unsurprisingly, this decision has given rise to a deep sense of unease within the business sector, as well as to much criticism which has focussed, in particular, on the lack of differentiation between the various affected technologies. However, there is already some unofficial talk about the possibility of the Spanish Government reconsidering the applicability of the regulations to less developed technologies, such a possibility being something which, as indicated above, has been expressly provided for in the text of the Royal Decree-Law.

Finally, it is possible, as a consequence of this legislation, that some groups will be forced to sell operating assets in the not so distant future, thus giving rise to new opportunities for investors with an appetite for exposure to the current remuneration system adopted in Spain.