EVOLUTION OF THE REMUNERATION SYSTEM FOR RENEWABLE ENERGY IN SPAIN

SUMMARY

Through this article, we will try to make a brief historical summary of the main phases in which the Renewable Energy market has been developing in Spain this century. To do so, we rely on Lupicinio International Law Firm’s Energy Department, which since 2003 has been involved in obtaining the necessary environmental permits and authorisations for the achievement of Renewable Energy projects, working actively for various developers in the sector, both local and foreign.

INTRODUCTION

Renewable energy has been, and will probably continue to be, one of the most volatile, uncertain and insecure economic markets in Spain. This is largely due to the continuous changes in regulation and therefore in the “rules of the game”, which have come and gone from the various governments that have governed our country.

The Energy Department at Lupicinio International Law Firm was created in 2003 with the aim, among others, of providing professional advice to the different promoters of the Sector in the Administrative processing of their Renewable Energy Projects. It is, therefore, that unattractive but vital initial part of a Project, in which we work to obtain all those permits and authorisations, both technical and environmental, that allow the construction of a Renewable Energy project.

It would be impossible to summarise the “abrupt change of direction” in the national regulation of Renewable Energy in a single article, and probably not even in a book. Our intention in this article is to describe, without too much length, the four main phases that, from our point of view as regulators, we believe have taken place over the last three decades.

PHASE 1: 1.997/2012. RENEWABLE ENERGY PREMIUMS

We could mark as the origin of what is colloquially known as the “renewable energy boom” the ratification by Spain of the European Energy Charter Treaty of 11 December 1997. From then on, the entire Community legal framework on energy was incorporated into our national law, which together with such important issues as liberalisation and market integration, gave rise to the promotion of renewable energies.

The aim of this regulation was mainly to create public conditions for the environmentally friendly use of energy and to promote energy efficiency.

This situation led to an uncontrolled system of premiums for renewable energies, which, although it exponentially boosted this market in Spain, putting the “radar” on the international level for the development and production of Renewable Energy, demonstrated essential errors at the beginning of the second decade of the century, generating a budget deficit of around 30,000 million euros for the public coffers, and making energy more expensive for the pockets of all Spaniards.

PHASE 2: 2012/2016. INCENTIVE SCHEMES FOR RENEWABLE ENERGY PRODUCTION

This situation was drastically, urgently and radically tackled by Royal Decree 1/2012, which “provisionally” but immediately abolished the bonus system, making many of the projects underway unviable and cutting off the emerging foreign capital investment.

After more than a year of uncertainty in which many viable projects were cancelled due to instability and a new, sudden change in the rules of the game, a change in the remuneration system for renewable energies took place and it was Royal Decree 9/2013 which established that RD 1/2012 was not provisional but definitive. With this new situation, the feed-in tariff system, with which Spain had risen so dizzyingly on the international renewable energy scene, had become a thing of the past.

This RD 9/2013 adopted urgent measures to guarantee the financial stability of the electricity system, at a time when the European Union was urging the Spanish State to put the aforementioned deficit in order, but without ceasing to provide incentives for renewable energies. And it was consolidated with the principles set out in Law 24/2013 on the Electricity Sector, and which was specified in Royal Decree 413/2014, of 6 June, which regulates the activity of electricity production from renewable energy sources, cogeneration and waste.

Thus, in this second phase, we arrived at the establishment of a specific remuneration regime for electricity generation facilities using renewable energy sources; although it stabilised the uncontrolled growth of the sector to some extent, it radically cut off the possibility of becoming one of the major powers in terms of renewable energy, with the impact that this would have had.

The professionals involved in this sector will always be left with the doubt that if, instead of such a radical change, other approaches had been taken, mainly with the help of the sector’s promoters, we would have avoided wasting all the economic and human effort, and we would probably have achieved the objective (not so far away at the time) of being an international energy example, a model to follow and not an example of failure and lack of control that placed us as one of the countries of extreme risk for foreign investment due to regulatory instability, only on a par with non-democratic countries.

PHASE 3: 2016/2021. AUCTIONS

The instability and insecurity in the sector led to a radical decrease in the number of new projects, and even to the fact that emerging and necessary technologies for the energy mix, such as biomass, practically disappeared from the renewable energy market.

With this situation and following models from other countries, Spain enters the complicated world of Auctions, its legal reference being article 14 of Law 24/2013, which indicates that exceptionally the Government may establish a specific remuneration system to promote production from renewable energy sources, high efficiency cogeneration and waste, when there is an obligation to comply with energy objectives derived from Directives or other regulations of European Union Law or when its introduction entails a reduction in energy costs and foreign energy dependence, setting the terms under which it is to be carried out.

The need to stabilise and boost the sector gave rise to the Renewable Energy Auctions as a competitive mechanism to grant this specific remuneration regime, leading to the various auctions organised by OMIE, from 2016 to the last one in early 2021, which have taken place with varying degrees of success. The analysis of each auction would be enough for a new article, so we will not go into them, despite the fact that Lupicinio International Law Firm has participated on behalf of different promoters. We limit ourselves to defining them as a system of sale, generally organised by means of a public event attended by interested buyers to submit their bids. The auction mechanism organises the event in such a way that the goods for sale are awarded to the buyers who, according to the established criteria, are the highest bidders.

Thus, what the government has done is to determine how much installed capacity for renewable generation of each technology is feasible to subsidise at any given time, and to allocate it to the investors interested in it who prove to be the most efficient through the auction mechanism.

PHASE 4: 2022. COMPETITIONS

And as a last phase, after the “pilot” test of the so-called Mudejar node, the Government has recently (June 2022) launched the first call for tenders for 17 evacuation nodes and 5.844Gw of power through a Ministerial Order. This Order establishes a points system that, in accordance with the provisions of Royal Decree 1183/2020, will grant the electricity generation facilities that are awarded the access and connection for these 17 nodes.

The criteria and point system defined by the Ministerial Order mainly prioritise the environmental impact of the project and its infrastructure, the implementation of the project and the socio-economic impact that the project will have on the area where it is located. These criteria and points could be summarised as follows:

– Criteria for awarding points (in order of importance in the event of a tie):

    1. Environmental Affections: 22 points.
    2. Time criteria for the implementation of the project: 13 points.
    3. Generation technology: 25 points.
      • Self-consumption: 1-5 pts.
      • Storage: 3-5 pts.
      • Hybridisation: 1-4 pts.
      • Existing repowering: 0-2 points.
      • E. Kinetics of synchronous machines: 0.5-1.5 pts.
      • Short power synchronous machines: 0.5-1.5 pts.
      • Damping oscillations: 0-1 pto.
      • Automatic power reduction: 0-3 pts.
    4. Socio-economic criteria: 19 points.
      • Expropriation % (inversely proportional): 0-4 pts.
      • Direct jobs in the construction phase: 0-3 points.
      • Direct jobs in operation phase: 0-3 points.
      • Economic impact local, regional, national and EU industrial value chain: 0-2 pts.
      • % participation of local investors (companies and administrations):0-1 pto.
      • Reinvestment mechanisms in the area: reinvestment 1% annual income > 2 points + 2 additional points if investments are made in demographically challenged municipalities.
      • Carbon footprint: 1-2 pts.

These commitments acquired by the promoter companies participating in the tender will be guaranteed by a substantial guarantee to cover, on the one hand, the estimated cost of energy not produced or its production outside the established deadlines, and on the other hand, compliance with the socio-economic incentives in the amount of 40 k€/MW.

 

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