On 20 June 2014, Spain's Official State Journal published Order IET/1045/2014, of 16 June, which approves the remuneration parameters for standard plants that will apply to certain renewable-energy, cogeneration and waste-to-energy generation plants ("Order IET/1045/2014"), which completes the legal and economic reform applicable to plants that produce electricity from renewable sources, cogeneration and waste.

This new legal framework, which began with Royal Decree Law 9/2013 and that is regulated in the Spanish Electricity Sector Act 24/2013, of 26 December, was first brought into effect by Royal Decree 413/2014, of 6 June, which regulates electricity production from renewable energy sources, cogeneration and waste ("Royal Decree 413/2014").

Royal Decree 413/2014, which came into effect on 11 June, established the methodology for calculating what is known as "specific remuneration", which applies to plants that do not reach the minimum revenues required to cover costs and to allow them to compete on an equal footing with other technologies in the market while obtaining a reasonable rate of return, in reference to each respective standard category of plant.

This specific remunerative regime is based on plants receiving an additional remuneration that supplements the revenues received from the market when this is necessary to cover the investment costs an efficient and well-run company is unable to recover from the market alone. Those plants are entitled, throughout their regulatory useful life and on top of the revenues they obtain from selling their energy at market prices, to receive specific remuneration divided into two components: one calculated per unit of installed power capacity to cover the cost of investment for each category of standard plant that they are unable to recoup from selling their energy on the market, known as "return on investment"; and a "return on operation", which covers, if any, the difference between the plant's operating costs and the income received by the applicable standard plant from its participation in the market.

In this regard, please see newsletter published last 16 June on Royal Decree 413/2014 here.

According to article 13 of Royal Decree 413/2014, the Spanish Ministry of Industry, Energy and Tourism would issue an Order in which it classifies and categorises the different standard plants – providing them with a specific code – on the basis of the technology they use, their installed power capacity, age, electricity system, as well as any other parameters that it believes are necessary to implement the new remunerative regime.

A series of remunerative parameters will apply to each standard plant. Those parameters will specify the specific remunerative regime and will enable its application to the plants that fall under the umbrella of each standard plant. The most significant parameters are: the return on investment per unit of power, the return on operation, the plant's regulatory useful life, its minimum number of operating hours, the plant's operating threshold and its maximum operating hours for the purpose of receiving the return on operation, if any.

As a result, Order IET/1045/2014 completes the remunerative model applicable to renewable-energy, cogeneration and waste-to-energy plants and looks to offer enduring financial stability to the electricity system while at the same time guaranteeing a reasonable rate of return. Renewable-energy, cogeneration and waste-to-energy plants will therefore continue to receive supplementary income on top of the revenues they receive from the market until the end of their useful life provided that they have not previously reached that rate of return.

Order IET/1045/2014 is also significant in that it establishes the regulatory useful life applicable to each standard plant as well as quantifying the initial value of investment, as both of these parameters cannot be reviewed subsequently.