More favourable treatment seeks to avoid the initiation of new arbitration proceedings and to terminate existing ones
On 22 November 2019, the interim Government approved Royal Decree-law 17/2019, adopting urgent measures for the necessary adaptation of remuneration parameters affecting the electricity system and addressing the stoppage of thermal generation plants (RDL 17/2019).
RDL 17/2019 was published in the State Official Gazette on 23 November 2019, entering into force on 24 November. It shall be validated by the Congress of Deputies within 30 days as soon as it resumes its ordinary activity or, alternatively, by the Permanent Deputation of the Congress.
New rate of “reasonable return”, extension of the former rate to installations commissioned before 13 July 2013 and impact over judicial or arbitral proceedings
RDL 17/2019 sets the rate of "reasonable return" used to determine the remuneration of renewable energy (RE) producers for the regulatory period spanning 1 January 2020 to 31 December 2025 (the Second Regulatory Period) at 7.09%.
However, it provides that installations in operation before Royal Decree-Law 9/2013 (RDL 9/2013) was passed (that is, 13 July 2013) are entitled to remain under the previous reasonable rate of return, 7.398%, for the following two regulatory periods, i.e. the Second Regulatory Period and also for the period starting from 1 January 2026 to 31 December 2031, which is the third regulatory period. Such installations would therefore continue to receive premiums in addition to the market pool price calculated to provide this reasonable return of 7.398%. RDL 17/2019 conditions the entitlement to that higher remuneration to the following:
- the RE installation is not the object of any judicial or arbitral proceedings challenging regulatory modifications implemented after Royal Decree 661/2007 requesting compensation for the resulting reduction in remuneration (the Proceedings); or
- the RE installation evidences before the Directorate General of Energy Policy and Mines (DGEPM) before 30 September 2020 that: (i) any Proceedings have been prematurely terminated, with a waiver of the right to resubmit the dispute; or that (ii) any compensation granted in the Proceedings has been relinquished.
In this sense, RDL 17/2019 makes an explicit reference to the multiple international arbitration proceedings that were initiated against Spain due to the reform of the RE remuneration system enacted through RDL 9/2013, Law 24/2013 and Royal Decree 413/2014, among others. The purported aim of this more favorable treatment is to avoid the initiation of new arbitration proceedings and to put an end to existing ones.
In particular, RDL 17/2019 defines Proceedings very broadly and specifies that this term shall include:
- Proceedings initiated by the (direct or indirect) owner of the RE installations. In the event that the RE installation is jointly owned, Proceedings shall include those initiated by any of the joint owners.
- Proceedings initiated by previous (direct or indirect) owners of the RE installations, in the event that the ownership of the same has been transferred after the initiation of the same.
- Proceedings initiated by those with a valid "Investment" in the RE installation according to the definition in the relevant investment treaty under which relief is sought.
- Proceedings initiated by third parties because they have acquired the procedural right to do so, whatever the means of the acquisition.
Owners of installations that were in operation prior to the entry into force of RDL 9/2013 could waive their right to the higher remuneration and opt to be remunerated using 7.09% as the reference "reasonable return". To do so, they have to communicate their decision to opt out of the 7.398% rate to the DGEPM by 1 April 2020.
In any case, if compensation is paid further to a decision rendered in any Proceedings in respect of an RE installation that continues to be remunerated according to a return of 7.398% (i.e. that has not opted out of this right), the DGEPM shall revoke the RE installation's right to it with effect from 1 October 2020. To this effect, the Spanish Commission on Markets and Competition shall reduce that RE installation's remuneration by the difference between the remuneration actually received and that which it should have received considering its loss from 1 October 2020. In other words, its remuneration shall be reduced to wipe away the benefit of any higher remuneration received after 1 October 2020. This mechanism is to be set out by the Government through a Royal Decree.
After these provisions, investors should calculate the value of the higher remuneration to be received during the next 12 years and compare this amount with such compensation claimed or received in any Proceedings they have initiated to ground any decision to withdraw those Proceedings (including any right to resubmit them in the future) or relinquish their right to any compensation.