Royal Decree-Law 9/2013 was passed on 12 July and published in Spain’s Official State Gazette on Saturday, 13 July 2013 (hereinafter, "Royal Decree-Law 9 /2013"). Being that the reforms that have been made to the electricity sector since 2009 have proved insufficient in putting a stop to the tariff deficit that exits (that is, the difference between the costs of producing electrical power and the revenue obtained from operating the electrical grid, which deficit currently stands at a figure of something over 26,000 million euros), this new royal decree-law is aimed (according to its Recitals) at addressing "the pressing need to immediately adopt a series of urgent measures that will ensure the financial stability of the national electrical grid and, likewise, the advisability of overhauling the regulatory framework so that it can adapt to the events and situation that define the electricity sector at any given period, with the objective of maintaining the sustainability of the electrical system".

Although Royal Decree-Law 9/2013 includes reforms that affect numerous areas of the electrical grid1, this document contains a brief reference to the modifications related to what has been known, up till now, as the "special regime," a term that is no longer used by the new law and is replaced by the expression "the production of electrical power from renewable energy sources, cogeneration and residual waste".

Elimination of regulated tariffs

The main modification is established under Article 1.Two of Royal Decree-Law 9/2013: said article abolishes the remunerative system based on a regulated tariff (the only one existing since Royal Decree-Law 2/2013 was enacted2), even for power plants in operation at the time the new law becomes enforceable. It replaces such regime by a system where the power plants producing electricity from renewable energy sources, cogeneration and residual waste will receive “a specific remuneration that is comprised of an amount per installed power unit/facility (which covers, where applicable, the investment costs for a standard plant that cannot be recovered from the sale of electrical power), in addition to an amount for the operation itself (which covers, where applicable, the difference between operating costs and the revenue obtained from the market by said standard power plant)” 3.

The calculation of the aforementioned specific remuneration shall be carried out on the basis of the standard costs and revenues (initial investment, operation and revenue from the sale of power) that would correspond to a “standard power plant, over the useful regulatory life thereof and based on the business activity that would be carried out by an efficient and well-managed company”. In any case, the costs and investments imposed by laws or administrative acts that are not applicable to the Spanish territory are excluded from the calculation of this specific remuneration, as well as any costs that are not exclusively linked to the activity of producing electrical power4.

This new remuneration is aimed at the power plants’ obtaining reasonable profitability, based on standard plants/costs/revenues. For the first time (with regard to this type of power plants) it has been legally determined what should be understood as “reasonable profitability,” linking it to the yield of the Spanish Government’s Bonds over a ten-year period. In any case, it is established that the parameters for the remunerative system can be reviewed every six years.

Specifically, for the power plants that currently are entitled to the benefits of the premium-based financial regime5 a “reasonable profitability,” prior to taxes, will mean the average yield of the secondary market for the Spanish State Bonds over the ten years prior to the royal decree-law entering into force, plus 300 basic points. An exception to this rule6 are the solar-thermal power plants that were awarded their concession under the regime established by the Third Additional Provision of Royal Decree 1565/2010, of 19 November. Said power plants will be remunerated with one sole amount for their operation, which amount will correspond to the economic bid made when they were awarded the concession.

To complete the above amendments the Royal Decree-Law 9/2013 specifically repeals (i) Royal Decree 661/2007, of 25 May, whereby the business activity of producing electrical power under the special regime is regulated, (ii) Royal Decree 1578/2008, of 26 September, on the remuneration for the business activity of certain photo-voltaic solar technology facilities, and (iii) Article 4, of the First Additional Provision and paragraph 2 of the Fifth Transitory Provision of Royal Decree-Law 6/2009, of 30 April. It further entrusts the Government with the preparation of a royal decree to regulate the legal and financial regime to be used for the power plants that produce electricity from renewable energy sources, cogeneration and residual waste, and which will be applicable retroactively as from 14 July 2013 (the day after Royal Decree-Law 9/2013 was enacted).

Notwithstanding the foregoing, in order to avoid a legal void until the new legal and financial system is passed, it is established that the laws listed in the paragraph above shall continue to be applicable until the new regime is in place7. During the aforementioned interim period, the payments that are made to the facilities that are entitled to premium-based remuneration shall be considered advance payments against later settlement. This means that, in the event that during said interim period an entity were to receive payments that exceed what it would be entitled to according to the new methodology, the national grid would hold a credit right vis-à-vis the owner of the relevant facilities, who would be obliged to return any amounts it received in excess.  

Other amendments  

  • The law establishes that, due to the special characteristics of the island and non-peninsular electrical grids, specific standard installations will be defined. This definition may include an incentive for investment together with a term to execute such plants, provided that said power facilities imply a significant decrease in the cost of the aforementioned grids.  
  • The Royal Decree-Law maintains the possibility of establishing a remuneration based on the previously stated parameters for cogeneration plants or plants that use primary energy, non-consumable renewable energy or energies obtained from non-hydraulic sources, biomass, bio-fuel or from agricultural or animal wastes, as well as for those services with an installed power of over 50 MW.  
  • A new registry is created by the law (the “Registry of the Specific Remunerative Regime”) wherein the remunerative parameters that are applicable to each of the facilities that are entitled to receive the specific remuneration will be included. Being included in said Registry will be an essential requirement for being able to adhere to the relevant remunerative regime.  

Conclusion  

In short, the new law implies a significant reform to the existing legal system for these matters, and particularly to the financial regime applicable to the power plants included under the prior special regime. The effects that finally derive from this reform for the power plants that are currently operating will depend on the parameters that are established under the future regulations that will implement the provisions of this new royal decree- -law. Therefore, to be able to fully quantify and assess the impact of the new regime, we will have to wait until said regulations are in place.