On June 11, 2014, RD 413/2014 of June 6, regulating electricity production from renewable energy sources, co-generation, and waste (“RD 413/2014”), came into force.
This document summarizes the content of RD 413/2014.
2. RD 413/2014 AS AN IMPLEMENTING REGULATION OF RDL 9/2013 AND LSE, AND THE PENDING STATUS OF THE OM
The change in the legal and financial regime for renewable energy plants started with Royal Decree 9/2013, of July 12, adopting urgent measures guaranteeing the financial stability of the electrical system (“RDL 9/2013”). This regulation laid the basis for the new system, which was confirmed in Act 24/2013, of December 26, on the Electricity Sector (Ley del Sector Eléctrico – LSE).
RD 413/2014 implements RDL 9/2013 and LSE regarding the rights and duties of the owners of renewable energy plants. Thus, it replaces Royal Decree 661/2007, of May 25.
However, within the reform, RD 413/2014 does not include the exact remuneration amount for renewable energy plants; we must wait for the publication of the ministerial order (orden ministerial, the “OM”) approving the remuneration parameters and categories of the plants. This OM is being processed and will most likely be published in the next few days.
Thus, to find the exact remuneration for each plant, RD 413/2014 and the OM must be jointly applied and considered.
3. RIGHTS AND DUTIES OF THE OWNERS OF RENEWABLE ENERGY PLANTS
RD 413/2014 covers the main rights and duties of the owners of renewable energy plants. The most relevant rights are as follows:
a) Contracting the sale or purchase of energy.
LEGAL UPDATE I ENERGY 3/11
b) Delivering their energy through the system operator.
c) Having access to transmission and distribution networks, and signing the relevant connection agreement with distributors for energy supply.
d) Receiving the corresponding remuneration for their participation in the electricity production market, and, if applicable, the specific remuneration regime regulated in RD 413/2014.
e) Receiving the remuneration to which they might be entitled for the costs incurred in the case of changes in the system operation.
Renewable energy and co-generation plants have priority over other plants when obtaining rights of access and connection.
Regarding priority of dispatching (the order in which the operation of power stations is arranged to meet electricity demand at all times), RD 413/2014 has changed the previous regime, removing the absolute priority that the renewable energy plants had. From now on, this priority will only arise when there are equal price offers from non-renewable energy plants. The dispatching order will be (i) renewable energy plants, (ii) co-generation plants, and (iii) other plants.
Renewable energy and co-generation plants may participate in system adjustment services on an optional basis if (i) they have been authorized by the system operator; and (ii) the minimum value of offers for participation in these system adjustment services is 10 MW, although this value may be reached as the aggregated offer of several plants.
As for duties, the most relevant ones are as follows:
a) Having energy measurement equipments.
b) Being registered in the Administrative Register of Electricity Production Plants (Registro Administrativo de Instalaciones de Producción de Energía Eléctrica).
c) Being part of a generation control center (in the case of plants or groupings exceeding 5 MW).
d) Sending telemetric readings to the system operator (in the case of plants or groupings exceeding 1 MW).
e) Wind farms, and photovoltaic plants -or plant groupings with an installed capacity of more than 2 MW must meet the technical requirements against voltage dips.
LEGAL UPDATE I ENERGY 4/11
f) Plants must remain, on an hourly basis, within the capacity range specified in Appendix III to RD 413/2014.
g) Renewable energy plants must send the information and documents required by the Ministry for Industry, Energy, and Tourism to it.
h) The plants must make power offers to the market operator for every scheduled period.
4. THE NEW REMUNERATION SYSTEM
The remuneration system applicable until now was based on receiving a price for every kw/h produced. Every technology was assigned a remuneration amount for the energy produced, which could consist, until February 2013, in a fixed tariff or in the sum of the pool price and a specific premium. Later, from February 2013 (when RDL 2/2013 came into force), the premium was removed and the tariff remained as the sole means of remuneration.
The new system, the basis for which is in RDL 9/2013, radically changes the remuneration framework.
Instead of receiving an amount for every energy unit produced, from now on, renewable plants may receive a specific amount associated with the type and specific category of each plant. Below we summarize the new system:
1. The remuneration system is based on the fact that the producer will receive two different amounts. The first one is the remuneration received on the basis of the pool price. The second one, known as the "Specific Remuneration Regime" (Régimen Retributivo Específico – the “RRE”), will only be awarded to plants that do not reach the minimum required to cover the costs to compete on an equal footing with other traditional technologies in the market achieving reasonable returns.
2. To calculate the RRE, a classification of types of plants will be established based on technology, installed capacity, age, electricity system, and on any other segmentation deemed fit. Every existing or new plant will be assigned a plant type based on its characteristics.
LEGAL UPDATE I ENERGY 5/11
3. Every type of plant will have a set of remuneration parameters that will be calculated based on the standard of an efficient, well-managed company, defining the specific remuneration system and enabling its application to the plants associated with that type of plant. The specific remuneration for each plant will be obtained from the remuneration parameters of the corresponding type of plant and the characteristics of the plant itself.
4. The most relevant remuneration parameters required to apply the RRE will be as follows:
a) Remuneration for investment (Rinv)
b) Remuneration for operation (Ro)
c) Incentive to investment for reduction of the generation cost (Iinv)
d) Regulatory useful life
e) Number of hours of minimum operation
f) Operation threshold
g) Maximum number of hours for remuneration for operation, if applicable
h) Market price annual floors and ceilings
i) Average annual price of daily and intraday markets
5. The RRE will be the sum of the following:
a) A remuneration amount for each installed capacity unit, the “remuneration for investment” (Rinv). The remuneration for investment value of a type of plant per capacity unit will be calculated, by reference to the investment costs of an efficient, well-managed company, in a way that enables any investment costs that have not yet been recovered according to the asset's net value and which may not be recovered from the expected operating revenues to be offset.
b) A remuneration amount for operation, “remuneration for operation” (Ro). The remuneration for operation per energy unit of a type plant will be calculated in such a way that, added to the estimated operation revenues per generated energy unit, it will equal the estimated operation costs per generated energy unit in that type of plant, by reference to the standard of an efficient, well-managed company.
LEGAL UPDATE I ENERGY 6/11
6. RD 413/2014 establishes a special rule to calculate the capacity of some plants, in such a way that certain plants meeting specific requirements will be regarded, for the purpose of establishing their remuneration and type of category, as part of one single plant, regardless of whether they (i) were independently built, and (ii) had been until then independently registered in the corresponding register. This rule will only apply to technologies for which capacity is a factor to be included in a category—the OM will determine this.
The criteria determining whether several plants should be added and regarded as a single plant are given in RD 413/2014, and mainly refer to factors such as connection in the same point of the grid, the fact (in the case of co-generation) of having the same associated consumer, closeness in time when being registered in the register and physical proximity.
7. The values used to establish remuneration will remain fixed for six-year periods, each of them known as "regulatory period." All parameters, including the profitability regarded as reasonable (for existing plants, 7,398%), may be reviewed every six years.
Only two elements may not change: the investment value and the duration of the regulatory useful life.
8. In addition, certain parameters, such as the fuel cost and the pool price, will be reviewed every three years (every "regulatory half-period").
9. RD 413/2014 sets certain limits on operation hours with a financial impact:
a. Operation threshold: a minimum number of hours will be defined for each type of plant. If that minimum number of hours is not reached, there will be no specific remuneration.
b. Minimum operation hours: this number of hours must be reached to receive 100% of the specific compensation foreseen. Therefore, if the number of hours falls within the operation threshold and the minimum number of hours, only part of the remuneration will be received, pro rata to operation hours.
LEGAL UPDATE I ENERGY 7/11
c. Maximum operation hours: number of hours above which no specific remuneration for operation will be paid.
These limits or thresholds are annual, but specific limits are also set for the first, second, and third quarter every year.
11. Remuneration is based on the estimated pool price. Thus, it is necessary to establish what happens if the pool price does not correspond to the estimated pool price. RD 413/2014 establishes a system by which an estimated pool value is fixed, as well as two caps and two floors (on pool values), as shown in the figure below.
The owner assumes the positive and negative impacts of the pool price provided that it remains within floor 1 and cap 1.
If the pool price falls between the two floors or between the two caps, impact will be shared on a 50% basis between the owner and the system.
If the pool price falls above cap 2 or below floor 2, the system will assume the positive or negative impact.
Adjustments will be made in the following periods.
5. RECOGNITION OF THE REMUNERATION REGIME FOR NEW INSTALLATIONS
As explained in the following section, the remuneration regime established in RD 413/2014 applies to all existing plants.
RD 413/2014 also establishes certain mechanisms enabling the financial regime to apply to future plants. This will take place through a competitive system.
LEGAL UPDATE I ENERGY 8/11
The remuneration regime for non-existing plants must be determined by means of a future royal decree, completed by a ministerial order, which will set the competition conditions, the capacity, if applicable, and the remuneration parameters. Any projects that are awarded capacity in that competitive system must be built within the period specified, and, once built and registered, will be assigned the regime established for each competition process.
6. APPLICATION OF RD 413/2014 TO ALREADY EXISTING PREMIUM-RECEIVING PLANTS
The main impact of RD 413/2014 is due to its application to plants that already existed before this decree and RDL 9/2013 came into force.
Thus, the specific remuneration regulated in RD 413/2014 is also assigned to already existing plants awarded with the remuneration under any of the two previous fundamental regulations, Royal Decree 661/2007 and Royal Decree 1578/2008, provided remuneration had not been withdrawn.
The actual amount allocated as specific remuneration to each of those already existing premium-receiving plants will depend on the classification established in the OM that is expected to be published soon, defining types of plants and allocating a specific remuneration regime to each type of plant. Already existing plants will receive the specific remuneration corresponding to the type of plant under which they fall.
This remuneration regime should provide each type of plant, during the useful life allocated, with returns (before taxes) of 7,398%, calculated on the basis of the average performance of 10-year state bonds on the secondary market during the 10 years before the coming into force of Royal Decree-Law 9/2013, increased by 300 base points. For calculating the remuneration, previous incomes (since the beginning of operation for each plant) shall be taken into account.
Article 19 of this decree, which establishes a review of returns at the end of every six years, will also apply to already existing plants. This means that 7,398% return is subject to review after 6 years.
LEGAL UPDATE I ENERGY 9/11
7. REGISTRATION OF ALREADY EXISTING PREMIUM-RECEIVING PLANTS IN THE SPECIFIC REMUNERATION REGISTER
Existing plants will have access to the new specific remuneration once they are registered in the specific remuneration regime register. Registration is expected to be automatic and, in principle, plants will be assigned to their respective types of plant based on the data in the register of electricity production plants and the payment system.
Automatic registration in the specific remuneration register and the possibility of changing the allocated type of plant will take place on a future date to be established by ministerial order, which will be published in the Official State Gazette of the Spanish State. In addition, registration may also take place in either one of the two different statuses foreseen, which may be successive: the "pre-assignation status" and the "operational status."
Registration in operational status requires for the plant in question to (i) have been definitively registered in the administrative register for electricity production plants, and (ii) have started supplying energy before the deadline established in its corresponding premium-receiving remuneration regime. Only plants that are registered in the operational status will achieve effective application of the specific remuneration regime established in RD 413/2014 for pre-existing premium-receiving plants. Registration in the operational status will take place directly for all plants that had already been registered in the payment system currently managed by the Spanish Markets and Competition Commission or CNMC.
8. WITHDRAWAL OF THE SPECIFIC REMUNERATION FROM ALREADY EXISTING PREMIUM-RECEIVING PLANTS
In addition to the withdrawal of specific remuneration in the cases of non-registration in the operational status, false data, or inaccurate data, additional provisions seven and eight of RD 413/2014 specifically regulate non-application of the specific remuneration regime to plants that had been pre-assigned in the pre-assignation registers regulated in Royal Decree 1578/2008 (photovoltaic plants) and in Royal Decree-Law 6/2009 (other renewable energy technologies).
LEGAL UPDATE I ENERGY 10/11
In both cases, it is stipulated that plants that had been pre-assigned but had not been definitively registered in the register of electricity production plants or had not started selling energy in the period established will lack a specific remuneration regime and their registration in the specific remuneration register will be canceled.
For the specific case of photovoltaic plants, it is expressly envisaged the enforcement of the guarantees provided for pre-assignation or for procurement of the rights of connection and access to the electricity grid.
In addition to these cases, RD 413/2014 envisages (in articles 32, 33 and 49, among others) instances of non-compliance leading to the loss of the specific financial regime, such as non-compliance with consumption limits, energy efficiency limits, and non-authorized changes.
9. PAYMENT OF THE ENERGY PRODUCED SINCE THE COMING INTO FORCE OF ROYAL DECREE-LAW 9/2013
With the approval of Royal Decree-Law 9/2013 and later, Act 24/2013, on the Electricity Sector, it was announced that the premiums that plants under the former special regime would continue to receive would be regarded as revenues with charge to the remuneration calculated using the new methods, and thus, would be regularized through successive liquidations, which Act 24/2013 on the Electricity Sector established to be nine.
These liquidations are regulated in more detail in temporary provision eight of RD 413/2014. They may only take place when the OM is finally approved, but this is expected to happen after the seventh monthly payment in 2014.
To this end, the new specific remuneration system will apply to any energy produced from the coming into force of RDL 9/2013, and it is understood that any collection and payment rights will be quantified as the difference between the remuneration plus premium that had been applied until now and the remuneration arising from the new specific remuneration regime. That difference will then be distributed into nine portions, one for each of the nine successive monthly liquidations to be performed in accordance with the new specific remuneration regime, for the energy being produced
LEGAL UPDATE I ENERGY 11/11
when said regime already applies, thus increasing or decreasing the amount that would have otherwise corresponded to the respective monthly payment of the plant in question.
The amount thus added to monthly liquidations may have a negative impact for the plants and decrease the remuneration that would correspond in the monthly liquidations. If that is the case, this decrease may not exceed 50% of the total amount the plant would have received that month, considering the sum of its specific remuneration plus any corresponding revenues from the sale of energy in the market.
If, as a result of the calculations mentioned, the liquidation generates a payment obligation toward the system, and the payer fails to fulfill that obligation, that payment obligation may be fulfilled through other collection rights from other payments in the system currently managed by the CNMC, and the payment may even be deducted from the payer's collection rights from the payer's sales in the market, to which end the market operator will transfer the relevant amounts.
Furthermore, when the plants take part in payments through indirect representatives, namely representatives acting on their own behalf, and the represented party has not settled the obligation payment via its representative, it is stipulated that the payments not paid by the indirect representative will be settled through the collection rights corresponding to the represented party, even if, at the time when remuneration is settled, the indirect representative no longer represented the payer.
©2014 CUATRECASAS, GONÇALVES PEREIRA. All rights reserved.
This document contains legal information produced by CUATRECASAS, GONÇALVES PEREIRA and intended only for information purposes. It does not constitute legal advice of any kind. To prevent the incorrect or unlawful use of the information, it is not to be disclosed to third parties, whether in its entirety or in abstract form, without the express prior authorization of CUATRECASAS, GONÇALVES PEREIRA.