1 Introduction

The Spanish Government approved on 25 May 2007, under the name “Real Decreto 661/2007”, hereinafter, the “RD 661/2007”, a new legal and economic regime to regulate the production of renewable energy.

The RD 661/2007, which substitutes and derogates the Real Decreto 436/2004, is framed within the commitment of the Spanish Government to incentivise investment in renewable energy in Spain. The RD 661/2007 seeks economic and legal stability, allowing businesses to formulate secure business plans, assuring reasonable profits. All these, together, make renewable energy an attractive investment in Spain. Members of the Spanish renewable associations (AEE, APPA, ASIF) are happy with the final draft of this new regulation.

The new law aims to realise the objectives set out in the Renewable Energy Plan 2005-2010 and the commitment of the Spanish Government at the European level. With the development of such sources of energy, renewable energy in Spain will cover 30% of the energy demand by 2010 and will prevent the emission of 27 million tonnes of CO2.

This note summarises the main points of RD 661/2007.

2 RD 661/2007- Principal Aspects

2.1 Enforceability

RD 661/2007 and, subsequently, the derogation of the RD 436/2004, came into effect on June 27 2007.

2.2 Renewable energy

RD 661/2007 determines the right to obtain a special tariff for the energy produced by the facilities with an installed power superior or inferior to 50MW, included within the special regime.

RD 661/2007 will not be retroactive. We must distinguish between two different legal regimes that will apply once RD 661/2007 comes into force.

Firstly, power facilities that are already in operation will be able to opt between (i) to remain governed under the former feed-in tariff for an indefinite period or to participate within the market until 31 December 2012 or (ii) to be governed under the new RD 661/2007.

Secondly RD 661/2007 will govern power facilities starting operation after 1st January 2008. The feed in tariffs stated under RD 661/2007 will be amended in 2010, in accordance with the achievement of the objectives fixed in the Renewal Energy Plan 2005-2010 and in the Efficient Energy Strategy.

However, these amendments will not affect power facilities already in operation but will contribute to the stability and security of the sector and promote its development.

Under the new regulation, power facilities will be able to opt for a fixed feed in tariff or to participate in the market subject to a cap and floor on prices.

The fixed feed in tariffs will be updated with PCI increases minus 25 basis points (0.25%) until 2012 and PCI increases minus 50 basis points (0.50%) after 2012. It is estimated that this approach will guarantee investors an approximate IRR of 8% on photovoltaic facilities, 8.5% on wind facilities through the feed in tariff and 10% through participation in the market. The RD 661/2007 also seeks to trigger co-generation as a tool to increase the efficiency of energy generation in Spain, in order to attain objectives set in the Kyoto Protocol.

Finally, the RD 661/2007 introduces the requirement for developers to deposit a guarantee for an amount of 500€/kW for solar power facilities and 20€/Kw for other types of renewables when application for a grid connection is made and will be refunded once the facility starts operating.

3 Conclusion

The new law confirms the Spanish Government’s will to meet the 2010 targets set by Kyoto and to give a stable framework in which to develop renewable energy investments in Spain.