On 12 July 2013 the Spanish Council of Ministers approved a reform of the Spanish energy sector. The energy reform will be implemented by means of a new Energy Sector Act, a Decree-Law, eight Royal Decrees2 and three Ministerial Orders.
However, it has to date only approved a Draft Electricity Sector Bill3 and Royal Decree-Law 9/2013, of 13 July ("RDL 9/2013"), which implements a series of urgent measures to guarantee the financial stability of the energy system. RDL 9/2013 entered in force on 14 July, the day following its publication in the official state journal, the Boletín Oficial del Estado ("BOE").
The main aims of the energy reform are:
- To establish a regulatory framework to guarantee financial stability in the electricity system.
- To remove deficit in the electricity sector once and for all, preventing future deficit and guaranteeing supply to consumers at the lowest possible cost and with increased transparency.
- To simplify and clarify electricity bills and encourage competition in domestic electricity tariffs to foster competition towards consumers, while maintaining the discount known as the "social bonus".
RDL 9/2013 seeks to set out a series of broad-ranging measures aimed at guaranteeing financial stability in the electricity system as an essential requirement for ensuring its economic sustainability and the security of supply.
In this note we offer a brief analysis of some of the standout features of RDL 9/2013, which should not be construed as a legal opinion on the new legislation.
1. Purpose sought
As pointed out in its Stated Purpose, RDL 9/2013 implements a series of measures targeted at the energy sector, focusing primarily on:
- A new remunerative regime applicable to special-regime installations.
- A remunerative regime applicable to transmission and distribution activities.
- The funding of the social bonus.
- Other provisions.
2. The new remunerative regime applicable to special-regime installations
RDL 9/2013 does not establish a new remunerative regime applicable to electricity generation from renewable sources, cogeneration or waste (commonly referred to as "special-regime installations"). It makes reference to the subsequent approval of a royal decree that will establish the legal and remunerative regime applicable to installations that generate electricity from renewable energy sources currently entitled to premium-based remuneration4.
The Second Final Provision of RDL 9/2013 establishes that the forthcoming royal decree will adhere to the principles of article 30 of the Spanish Electricity Sector Act 54/1997, of 27 November ("LSE"). Article 30 of the LSE has also been amended by RDL 9/2013 (as we will describe below).
Remunerative regime applicable to special-regime installations
By amending article 30.4 of the LSE, RDL 9/2013 replaces the system of tariffs with a system offering (i) income from the sale of electricity generated valued at market prices; and (ii) income composed of a) an installed power component that covers the investment costs of a standard installation that cannot be recovered through energy sales, if any, and b) an operation component covering the shortfall between operating costs and income obtained by the standard installation from the market, if any.
That specific remuneration will be calculated taking into account the following parameters for a standard installation, throughout its regulatory useful life and on the basis of the activity that would be carried out by an efficient and well-managed company:
- Standard income from the sale of generated power valued at production market prices.
- Standard operating costs.
- The standard value of the initial investment.
Any costs and investments determined by regulation or administrative actions that do not apply to the entire Spanish territory will not be taken into account. Only those costs and investments that are exclusively related to power production will be taken into account.
The reasonable rate of return before tax is connected to the average yield of Spanish 10-year Government bonds on the secondary market, plus a differential. The parameters of the remunerative regime may be reviewed every six years. In the case of the installations that, when RDL 9/2013 entered into force, were entitled to premium-based remuneration, the reasonable rate of return before tax is now linked to the average yield of Spanish 10-year Government bonds on the secondary market in the preceding 10 years, plus 300 basis points.
Finally, the Spanish Government may entitle power plants to receive remuneration based on the principles of article 30.4 LSE when they generate power from cogeneration or use as their primary energy source non-consumable and non-hydraulic renewable energy, biomass, biofuels or waste from agricultural or livestock exploitations, or services, even when the power plants in question have an installed power capacity exceeding 50 MW.
Features specific to the island and non-peninsular electricity systems
The following features of the island and non-peninsular electricity systems should be highlighted:
Plants and remuneration
Given the unique characteristics of the island and non-peninsular electricity systems (especially with regard to wind and photovoltaic energy), RDL 9/2013 exceptionally allows standard installations to be defined specifically for each system.
In turn, the remunerative system applied cannot exceed the minimum levels necessary to cover costs to allow the plants to compete on an equal footing with the other technologies present in the market and that allow them to obtain a reasonable rate of return by reference to the standard installation in each case. However, the remunerative regime may exceptionally include an incentive to investment and fixed-term performance when the plant will substantially reduce costs within the island and nonpeninsular electricity systems.
Funding from the General State Budget
RDL 9/2013 explains that the general state budget's inability to fund 100% of the additional costs generated by production in the island and non-peninsular electricity systems has resulted in the derogation of First Additional Provision of Royal Decree Law 6/2009, of 30 April, which adopted measures in the energy sector and approved the social bonus.
The Fourth Additional Provision of RDL 9/2013 has established that 50% of the excess costs will be funded by the General State Budget. The excess costs generated each year will be included in the General State Budget Act passed the following year, on the terms established in that law.
Creation of the Registry of the Specific Remunerative Regime
A registry is created with the aim of awarding and properly monitoring the specific remuneration applied to power plants that use renewable energy sources, cogeneration or waste. The Registry of the Specific Remunerative Regime is created under the Ministry for Industry, Energy and Tourism (the "Minetur"), and will include the remunerative parameters applicable to those plants.
A plant must be registered with the Registry of the Specific Remunerative Regime to be eligible to the applicable remunerative regime.
Creation of the Administrative Registry of Self-consumption
The Twenty-seventh Additional Provision of RDL 9/2013 creates the Administrative Registry of Self-consumption with the aim of properly monitoring consumers that have elected energy supply formats that include self-consumption, as well as those associated to power plants connected within their network or by direct line. This Registry will hold information on the consumers and their related installations.
Derogation and transitional rules
In its Single Derogatory Provision, RDL 9/2013 expressly derogates:
- Royal Decree 661/2007, of 25 May, which regulates power generation under the special regime ("RD 661/2007").
- Royal Decree 1578/2008, of 26 September, on the remuneration of electricity production using solar photovoltaic technology applicable to plants after the deadline for maintaining the remuneration under Royal Decree 661/2007, of 25 May, in respect of that technology.
- Article 4, the first additional provision and paragraph 2 of the fifth transitory provision of Royal Decree Law 6/2009, of 30 April, which adopted measures in the energy sector and approved the social bonus.
However, the Third Transitory Provision of RDL 9/2013 establishes a transitional regime to phase in the new provisions. Accordingly, and except for certain provisions5, the above derogated legislation will continue to apply on an interim basis until new provisions have been approved to fully implement a royal decree that regulates the legal and remunerative regime applicable to power plants that generate electricity from renewable energy sources, cogeneration and waste currently entitled to premium-based remuneration.
During that transitional period, the agency entrusted with settlement will make provisional payments for energy production activities carried out by special-regime installations, as well as those ordinary-regime plants that receive premium-based remuneration pursuant to RD 661/2007.
Any credit rights and payment obligations generated in that transitional period – between the entry into force of RDL 9/2013 and the entry into effect of the provisions necessary to fully implement the new remunerative regime – as a result of the different parameters applied will be settled by the respective settlement agency over the course of the six payments due after the new provisions enter into effect.
3. The remuneration of transmission and distribution
RDL 9/2013 establishes that the methodologies for remunerating transmission and distribution will take into account the costs necessary for an efficient and well-managed company to perform the activity, with basic criteria being applied uniformly across the Spanish territory. The regime applicable to network activities will offer remuneration suitable for low-risk activities.
The remuneration applicable to distribution and transmission assets entitled to remuneration from the electricity system is connected to the yield of Spanish 10-year Government bonds on the secondary market, plus a differential.
Transitional rules applicable to the remuneration of transmission and distribution
RDL 9/2013 establishes a transitional regime applicable to the remuneration of transmission and distribution activities.
Remuneration of transmission and distribution during a first period running from 1 January 2013 until RDL 9/2013 enters into force
Until RDL 9/2013 enters into force, distributors and the owners of transmission infrastructure will receive remuneration that is proportional to the income appearing in Order IET/221/2013.
However, distributors that before RDL 9/2013 enters into force requested a review of their remuneration for 2013 on the basis of appendix I6 of Order IET/221/2013, or as a result of mergers or acquisitions of distributors or the acquisition of distribution assets from other companies, may see their remuneration modified by the Minetur during that first period, on the basis of a prior report issued by the Spanish markets and competition commission, the Comisión Nacional del Mercado y la Competencia ("CNMC").
This remuneration will be definitive.
Remuneration of distribution and transmission after RDL 9/2013 enters into force
The Minetur will approve remuneration for each company for a second period running from the entry into force of RDL 9/2013 until 31 December 2013. To do so, the Minetur will send a report to the CNMC in which it proposes remuneration for each company.
The remuneration of transmission and distribution activities during that second period will be calculated according to the average yield of Spanish 10-year Government bonds on the secondary market during the three months preceding the date on which RDL 9/2013 enters into force, plus 100 basis points.
The remuneration received from 1 January 2014 until the start of the first period established in the royal decree regulating the remuneration of distribution and transmission activities referred to in articles 5.57 and 6.38, respectively, of Royal Decree Law 13/2012, of 30 March, will be calculated according to the methodology set out in appendices II and IV of RDL 9/2013, respectively.
The Minetur will approve the remuneration applicable to that period and, before 1 October of each year, the CNMC will send the Minetur a proposal of remuneration for each company.
The remuneration of transmission and distribution activities applicable from 1 January 2014 (until the approval of the royal decree regulating the remuneration of distribution and transmission activities) will be calculated according to the average yield of Spanish 10-year Government bonds on the secondary market during the three months preceding the date on which that royal decree enters into force, plus 200 basis points.
This remuneration will be definitive.
4. Funding the social bonus
RDL 9/20013 amends the rules by which the discount known as the social bonus is funded. The cost of the social bonus will be borne by the parent companies of groups or companies that simultaneously generate, distribute and trade electricity.
Funding will be apportioned among corporate groups on the basis of the relationship between (i) one component consisting of the sum of the annual averages of the number of supply points connected to distributors' distribution networks and the number of customers of energy traders in which the group has equity interests, and (ii) another component consisting of the sum of all annual supply and customer averages for all corporate groups taken into account for the purpose of the apportionment. The CNMC will calculate this percentage annually.
Finally, the parameters of the social bonus are due to be amended before 1 July 2014.
5. Other rules
Review of electricity access tariff prices
On an exceptional basis, the Minetur may review the prices of the power and active energy components of access tariffs, at the most on a quarterly basis, when situations emerge that could significantly affect regulated costs or the parameters used to calculate them.
In turn, the Minetur is able, within one month of RDL 9/2013 entering into force, to review the prices of the power and active energy components of network access tariffs.
Guarantees to be furnished by the Spanish Government and the Tariff Deficit Securitisation Fund
An amendment is made to the Spanish State Budget Act 17/2012, of 27 December, for 2013, increasing to €4 billion the maximum value of the guarantees that can be provided by the Spanish Government to secure the economic obligations payable against the Tariff Deficit Securitisation Fund, in the form of financial instruments issued by the Fund as a result of the securitisation of electricity companies' credit rights (which in 2012 reached €4.109 billion).
Capacity payments include (i) an incentive for investment in long-term capacity; and (ii) medium-term cut-off service. RDL 9/2013 has reduced the incentive for long-term investment in capacity applicable to eligible generation installations to €10,000/MW/year.
If plants are entitled to receive that incentive when RDL 9/2013 enters into force, they will be entitled to receive it for twice the period that would have remained until the expiry of the 10-year eligibility period.
However, power plants that are not definitively registered at the Minetur's Administrative Register of electricity generation installations when RDL 9/2013 enters into force will not be entitled to the incentive, unless they have been issued with a final start-up certificate before 1 January 2016 (in which case they will be entitled to receive €10,000/MW/year for 20 years).
RDL 9/2013 amends the Special Taxes Act 38/1992, of 28 December, reducing the tax on coal for professional uses – provided that it is not used in cogeneration processes or in the direct or indirect production of electricity – to €0.15 per gigajoule. Furthermore, reporting false or inaccurate information, when this results in lower tax payments than are actually due, is now a very serious offence.