On 1 February 2013, the Council of Ministers approved Royal Decree-Law 2/2013, of 1 February 2013, on urgent measures in the energy system and in the sector (“Royal Decree-Law 2/2013”), which entered into force on 2 February 2013, date on which it was published in the Official State Gazette.
On the one hand, with Royal Decree-Law 2/2013, the Government undertakes a new reform of the energy sector, establishing, among other measures, a number of adjustments in the remuneration regulations pertinent to the special regime power generation facilities.
On the other hand, Royal Decree-Law 2/2013 establishes the regulations on technical provisions cover and solvency margin for insurers in relation to ordinary actions and subordinated debt issued by the Company Managing the Assets Resulting from the Bank Restructuring (Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria, the “SAREB”).
REASONS FOR THE REFORM
According to the Explanatory Memorandum of Royal Decree-Law 2/2013, the National Energy Commission has demonstrated the onset of new deviations in the cost estimations and payments for the energy system1, due to which the income derived from the access tolls and other regulated pricing, together with the items relevant to the General State Budget, will be insufficient to cover the costs of the energy system in the current economic situation.
These deviations are the primary result of: (i) a greater increase of the cost of the special regime for energy generation due to a higher than expected number of operating hours, as well as an increase in the compensation values due to their indexation on the Brent benchmark; and (ii) a decrease in the income from the access tolls applied to the final energy consumers, due to a sharp drop in demand.
The Government has decided to adopt a number of urgent measures to reduce costs in the terms and conditions described in this Informative Note.
ADJUSTING REMUNERATION FOR THE ENERGY SYSTEM ACTIVITIES LINKED TO THE CONSUMER PRICE INDEX
Certain adjustment methods for the remuneration of various energy sector activities are connected to the evolution of the Consumer Price Index (“CPI”), where tax increases play a role (particularly important in 2012). The Explanatory Memorandum states that it does not seem appropriate for an increase in tax to result in an increase of regulated remunerations within the energy sector, the costs of which are not directly related to the direct taxation on consumption.
Thus, and for the purposes of using a more stable index, article 1 of Royal Decree-Law 2/2013 establishes that, in force from 1 January 2013, all adjustment methods for the remuneration of the energy sector that are linked to the CPI, shall be replaced by the Price Consumer Index at constant prices excluding unprocessed food and energy products.
ELIMINATION OF THE PREMIUM TO THE SPECIAL REGIME POWER GENERATION FACILITIES SELLING POWER ON THE ELECTRICITY GENERATION MARKET
Royal Decree 661/2007, of 25 May, which regulates the special regime energy generation (“Royal Decree 661/2007”), allows the owners of special regime power generation facilities to sell the generated electricity either through (i) the release of electricity to the system through the transportation or distribution grid, thus achieving a single regulated tariff; or (ii) selling the power on the electricity generation market, in which case, the energy selling price is the price established by the organized market (the market price) or the freely negotiated price, supplemented where applicable, by a premium.
Regarding the second option, the premium could be fixed or variable, and it is determined according to a reference premium and according to upper and lower limits on the market price plus the reference premium, according to the category of the facility, the installed power and, where applicable, the date on which the facility became operational, in accordance with the tables in articles 35 et sec. of Royal Decree 661/2007.
Article 2 of Royal Decree-Law 2/2013 amends, in this regard, the respective tables in articles 35, 36 and 42 of Royal Decree 661/2007, establishing the value of the reference premium for all facilities at 0 c€/kWh and, thereby, the premium received up until now by the owners of the special regime power generation facilities is eliminated in general.
In short, once Royal Decree-Law 2/2013 has come into force, those owners of special regime power generation facilities that choose to sell their power freely on the electricity generation market, shall not receive any premium2.
This adjustment is modified, in the view of Royal Decree-Law 2/2013, stating that due to the volatility of the electricity generation market price, the option to remunerate energy generated under the special regime through a premium supplementing the above mentioned price, makes it difficult to meet the two-folded objective of guaranteeing reasonable profitability for these types of facilities at the same time as avoiding a remuneration that is too high, the burden of which would fall on the other players in the energy sector.
AMENDMENT TO THE OPTION REGULATION AND OTHER PROVISIONS OF ROYAL DECREE 661/2007
In the first place, it should be noted that, in accordance with the Only Addition Provision of Royal Decree-Law 2/2013, those facilities which wish to continue selling the power they generate on the electricity generation market (option b in article 24.1 of Royal Decree 661/2007), should make it expressly known to the Directorate General for Energy Policy and Mining of the Ministry of Industry, Energy and Tourism before 15 February 2013. Otherwise, as of 1 January 2013, these facilities automatically start benefitting from the option to sell their energy through a single regulated tariff.
It should be highlighted that, according to article 3 of Royal Decree-Law 2/2013, once the same has entered into force, those facilities which choose to sell their power on the market, will not be able to change the regime of the regulated tariff, thus cancelling what is foreseen in this respect in section 4 of article 24 of Royal Decree 661/2007. Likewise, the communications regarding changing from the option to sell under the regulated tariff regime to the market regime, which had not been carried out when Royal Decree-Law 2/2013 entered into force, shall be rendered without effect.
Finally, sections Three and Four of article 2 of Royal Decree-Law 2/2013 establish some amendments to the tariff established for certain groups within the categories of facilities foreseen in Royal Decree 661/2007 (in particular, wind and geothermal energy facilities).
FACILITIES AWARDED THROUGH THE TENDER FOR INNOVATIVE SOLAR THERMOELECTRIC TECHNOLOGY FACILITIES
Article 4 of Royal Decree-Law 2/2013 states that the specific remuneration regime for innovative solar thermoelectric technology facilities, foreseen in the Third Additional Provision of Royal Decree 1565/2010, of 19 November, shall be that which is established in the corresponding resolution of the State Secretariat for Energy, which resolves the corresponding procedure based on competition. Likewise, calculating the values of the premium and the upper and lower limits applicable to such specific regulation are referred to ORDER IET\3586\2011, of 20 December.
COVER SCHEME FOR TECHNICAL PROVISIONS AND SOLVENCY MARGIN OF INSURANCE COMPANIES IN RELATION TO THE ORDINARY SHARES AND SUBORDINATED DEBT ISSUED BY SAREB
In addition to the reforms made within the energy sector, Royal Decree-Law 2/2013 also contains measures for the financial sector.
For the purposes of the Regulation on the Rules and Supervision of Private Insurance, Royal Decree-Law 2/2013 establishes that shares or real estate rights issued by SAREB shall be valued by their cost or amortised cost, under the terms of the Accounting System of insurance companies.
These SAREB-issued assets shall be suitable for the cover of technical provisions of insurance companies, providing that the limit to be taken into account does not exceed 3% of the technical provisions to be covered. With regard to the solvency margin of insurance companies, unrealised capital gains and losses arising from the assets issued by Sareb shall not be taken into account, whether recorded in the financial statements or not.