Royal Decree-Law 9/2013 (hereinafter, RDL or RDL 9/2013) is the first of the rules announced for the reform of the Spanish energy sector. This was published in the Official State Gazette on July 13, and came into force on July 14.

In the coming weeks, as mentioned, the Government will improve a draft bill which it will send to the Spanish Parliament to be processed, and will likewise process the approval of various royal decrees.  

Below is a summary of the content of the main new aspects introduced by RDL 9/2013.  

AMENDMENT OF THE REMUNERATION SYSTEM OF SPECIAL SYSTEM INSTALLATIONS  

The RDL changes the Electricity Sector Act (ESA) and, following on from this, fully amends the remuneration system of the special system.  

The new wording of article 30 of the ESA contemplates the following points:  

  1. RD 661/2007, that was the regulation that created the current tariffs, and article 4 of Royal Decree-Law 6/2009, which created the Remuneration Pre-allocation Register, are revoked. In respect of this, a new economic system is announced, to be developed and approved in the coming months.  
  2. The new remuneration will consist of the sum obtained through the sale of the energy generated valued at market price (through the pool), plus specific remuneration consisting of (i) a cost per unit of power installed covering, where applicable, any investment costs of standard installations which can not be recovered by the sale of the energy, and (ii) an operation cost covering, where applicable, the difference between the operating costs and revenue through participation on the market of such standard installations.  
  3. For the calculation of such specific remuneration, standard installations for each technology will be taken into account, bearing in mind, throughout their regulatory useful life:
    1. Standard income from the sale of the energy generated valued at production market price.  
    2. Standard operating costs.  
    3. The standard value of the initial investment.
  4. Among the costs, any costs or investments determined by administrative rules or acts not applicable throughout Spanish territory will not be included. In the absence of any further specifications, it seems to intend to exclude from the calculation any local or regional levies, fees and charges encumbering the generating of electricity through renewable sources and co-generation.
  5. Likewise, account will only be taken of those costs and investments responding exclusively to the activity of electrical energy production.  
  6. The remuneration system will not exceed the minimum level necessary for covering the costs enabling the installations to compete on a level playing-field with the rest of the technologies on the market and reasonable profitability to be earned through reference to the standard installations applicable in each case.  
  7. In addition, in view of the parameters to be used, the RDL contains a reference to the activity carried out by an “efficient, well-managed company”. This is a concept from Community case law, although enshrined within the scope of State aid1.  
  8. Reasonable profitability will be calculated before tax, and in reference to the average yield on the secondary market of Government Bonds at ten years applying the appropriate margin.  
  9. This margin has not been defined for new installations. For those installations already in operation (or allocated in advance, provided they have been recorded in the RAIPRE), the margin will be 300 basis points, which would currently produce a remuneration of around 7.5%, calculated as profitability of the project.  
  10. The key is obviously going to be not so much in the premium which, in the case of the plants existing, should yield the said profitability as a result, but rather the calculation basis used, and the criteria for establishing the cost standard for each technology.  
  11. While the new system is being approved, the previous system continues to be in effect transitionally, until the approval of the provisions necessary for the total application of the Royal Decree referred to by the second final provision of this Royal Decree-Law, except for the bonus percentage for complying with the range of the power factor contained in Annex V of Royal Decree 661/2007, of May 25, which ceases to apply automatically.
  12. Current remunerations shall continue, as payment on account, under Royal Decree 661/2007, of May 25. Once the new system has been approved, the methodology established by virtue of the RDL will be applied to the energy produced since July 14, 2013, giving rise to the corresponding settlements, in favor or against, accordingly.
  13. Specific systems are established for island installations and those outside the Spanish peninsula, as well as the possibility of extending the new system to installations with a power of more than 50 MW.  
  14. The bonus for efficiency for installations receiving this under article 28 of Royal Decree 661/2007, of May 25, is automatically removed.  
  15. The bonus for reactive power established under article 29 of the said Royal Decree 661/2007 is also removed.  
  16. For the grant and monitoring of the specific remuneration afforded to production installations based on renewable energy sources, co-generation and waste, a specific payment system register (Registro de régimen retributivo específico) (RRRE) has been created, including the payment parameters applicable to such installations.  

NEW PAYMENT SYSTEM FOR THE ACTIVITIES OF DISTRIBUTION AND TRANSPORTATION AND DISTRIBUTION  

Payment for distribution  

RDL 9/2013 also affects the remuneration of electrical power distribution companies. The annual remuneration of this activity, approved recently2 for 2013, had already been separated from the provisions of the general regulation on this matter, which established that a reference remuneration had to be adopted with effects for a regulatory period of four years, as from the audited costs of the companies3, although with the changes arising under RD-Law 13/2012. Thus, the annual remuneration approved for distribution in 2013 was expressly classified as "provisional".  

Within this context, RDL 9/2013 turns part of such "provisional" annual remuneration into definitive: that corresponding to the part proportional to the yearly period elapsed until the coming into force of the decree-law. On the contrary, as from its coming into force, the remuneration of the distribution will no longer be received in accordance with the amount established at the start of this year but, transitionally, this will be determined by the Ministry using the methodology the decree-law imposes for the remainder of 2013 on the one hand, and on the other, for the year 2014 and until a new "regulatory period" commences in which the criteria already mentioned by RD-Law 13/2012 continue.

Thinking ahead, the intention is for remuneration to be calculated based on the costs incurred by an ideal company, plus a financial remuneration. In this respect, despite the successive changes undergone by the remuneration of this activity, with the uncertainty this implies, RDL 9/2013 classifies the activity as low-risk and states that the financial remuneration of its assets should be calculated through reference to the secondary market of Government Bonds at ten years, plus a differential (100 basis points for the remuneration remaining for 2013; 200 basis points as from 2014 and until a new regulatory period commences).  

Remuneration for transportation  

The remuneration of transportation of electricity has also been altered in a similar way. A part of the annual remuneration accrued in accordance with which it had been provisionally approved for 2013 has likewise become definitive, in proportion to the time elapsed of the year until the coming into force of the decree-law, whereas for the time remaining of the year 2013 and for 2014, until a new regulatory period commences, the Ministry will transitionally apply the calculation methodologies appearing in the decree-law. The objective is for the remuneration to be established based on the costs of an ideal company, to which a financial remuneration must be added, based on the secondary market of Government Bonds at ten years, plus a differential, in the same way as established for the activity of distribution.  

THE FINANCING OF THE "BONO SOCIAL"  

Another of the changes introduced by RDL 13/2009 affects the way to compensate the discount on the Tariff of Last Resort (Tarifa de Último Recurso) (TUR) applied by Last Resort Retailers (Comercializadores de Último Recurso) (CUR), when they supply to domestic consumers classified as vulnerable. As is well known, CURs are companies supplying electricity at the fixed price established by the Government (the TUR) integrated into business groups to which the distribution companies, to whose networks most of the said vulnerable consumers are connected, also belong.  

Based on a Supreme Court Judgment dated February 7, 2012, the discount applied by the CURs could no longer be reimbursed to them by the list of energy electrical power production companies which had initially had to bear such charge. Therefore, the reimbursement was provisionally being charged to the collection of access tariffs to the networks paid by all users of the electricity networks.

As from RDL 13/2009, the intention is for reimbursements to the CURs to be made by the group of parent companies of the same business groups of which such CURs form a part, in proportion to the number of supply points serving each of these business groups, whether through their distribution companies or through their electricity marketing companies.

MEASURES FOR COVERING AND BEARING THE ELECTRICITY DEFICIT  

RD-Law 9/2013, as justification of its content, appeals to the so-called "tariff deficit". The deficit is the insufficiency of the revenue from the electricity system (mainly from access tariffs to the networks paid by users of the latter) to meet all payments the regulation of the sector has recognized in favor of subjects devoted to different electricity activities, considered by the same regulation as warranting such payments.  

Electricity companies forced to contribute resources with which to balance out such difference enjoy collection rights which, in turn, may be assigned to third parties in the form of securities through the electricity system deficit securitization fund (Fondo de Titulización del Déficit del Sistema Eléctrico) (FADE), payments of which enjoy the guarantee of the State, as guarantor.  

The differential between costs and revenue for 2012 has been quantified at 4,109,000,000, and therefore RDL 9/2013 uses this amount to specify the value of the collection rights which might be securitized through the FADE. Moreover, the guarantee of the State this fund enjoys also means the limit of the guarantees the State can grant might have to be corrected to incorporate the greater volume of collection rights the fund can meet.  

MODIFICATION OF PAYMENTS THROUGH CAPACITY  

Payments for capacity include two types of services: the incentive for long-term investment in capacity and the service of mid-term availability.

The incentive for long-term investment in capacity is regulated under Order ITC/2794/2007, of September 27, revising electricity tariffs as from October 1, 2007, and its purpose is to remunerate investment in new capacity, necessary for ensuring the coverage of demand in the long term.  

RDL 9/2013 reduces the incentive for long-term investment established under Order ITC/2794/2007, of December 27, establishing it at 10,000 €/MW/year. The installations which already had a collection right on the coming into force of RDL 9/2013 will have this reduction compensated by an increase in the period of the same. Moreover, the application of the said incentive for new production installations is removed, except for those which obtained a definitive start-up record prior to January 1, 2016.

OTHER ISSUES  

As a final aspect, a change to access tariffs is envisaged, and a maximum period is established of fifteen days for the report of the CNMC (in truth, still of the CNE) on the new system (this period is 7 days in the case of access tariffs).  

Likewise, for the suitable monitoring of consumers using the forms of electrical power supply established under article 9.g) of the ESA and any others associated with production installations connected within its network or through a direct line, an administrative register of the self-consumption of electrical power (Registro Administrativo de autoconsumo de energía eléctrica) has been created, which will contain the information on consumers and their associated installations.