Royal Decree-Law 6/2022: key measures for the electricity industry and for renewable electricity generation
Spain Corporate Commentary
The main new steps approved by the government for the electricity industry are a revision of the remuneration parameters for 2022, and measures to speed up the application handling procedures for renewable energy projects.
Royal Decree-Law 6/2022, of March 29, 2022 adopting urgent measures as part of the National Plan in response to the economic and social consequences of the war in Ukraine (RDL 6/2022) was adopted on March 31, 2022. This decree-law contains a raft of measures in very diverse fields, targeted, among other goals, at containing sharp rises in the prices of energy and essentials and at softening their effects on sectors of the population hit by those rises.
Below is a summary of those adopted for the electricity industry and, in particular, in relation to renewable electricity generation.
Revised remuneration parameters in the specific remuneration system (for electricity generation facilities using renewable energy sources, co-generation and waste) and applying in 2022
The remuneration for facilities subject to the specific remuneration system (for electricity generation facilities using renewable energy sources, co-generation and waste) is calculated by adding to the revenues obtained from selling electricity on the market to ensure that the facilities achieve a reasonable return. Consequently, the level of remuneration under that specific remuneration system depends on the market price estimates used to calculate it, which are revised in each regulatory semi-period, as determined in Royal Decree 413/2014, of June 6, 2014.
The remuneration parameters for the current regulatory semi-period (January 1, 2020 through December 31, 2022) were defined in Order TED/171/2020. Now, under article 5 of RDL 6/2022, an extraordinary measure has been taken to subdivide the current regulatory semi-period, so as to create a new semi-period between January 1, 2022 and December 31, 2022.
As a result, and without precluding the adjustment required for the semi-period starting on January 1, 2023, a mandate is given to approve a ministerial order revising for 2022 the remuneration parameters determined in Order TED/171/2020, of February 24, 2020, not later than May 31, 2022. That adaptation will take place in the first settlement for which the related adjustments will be available following the entry into force of RDL 6/2022.
This revision must be calculated using the methodology laid down in Royal Decree 413/2014, of June 6, 2014, in a similar way to the revision required at the end of each regulatory semi-period, and the existing calculation assumptions and parameter values must be retained, with the following specific requirements:
- Estimates of market prices for 2022, 2023 and 2024 must be made, which will be calculated as the average of the prices of annual futures contracts, traded on the electricity futures market organized by the Iberian Energy Market Operator (OMIP) in the last six months of 2021. Additionally, the real kurtosis coefficient (coeficiente de apuntamiento real) for 2021 will be used for each technology;
- The fossil fuel price estimates for the two six-month periods of 2022 must be made by reference to the six-monthly variations in the cost of raw materials and, if applicable, of the access tolls contemplated in Order IET/1345/2015, of July 2, 2015;
- The carbon credit price estimate for 2022 and later years must be calculated as the average of the daily prices of carbon credit futures contracts for 2022 traded in the last six months of 2021; and
- An adjustment shall be made in respect of variance in the market price for 2020 and 2021, for which the average annual price values on the daily and intraday market calculated by the CNMC, for each calendar year, are used as the average of the hourly prices on the daily and intraday market (33.94 €/MWh for 2020 and 111.90€/MWh for 2021). In other words, the adjustment that would have been made at the end of the current regulatory semi-period is brought forward by a year.
As a result of this revision applicable as of January 1, 2022, the CNMC (Spanish Markets and Antitrust Commission) will have to make an adjustment in respect of the difference between the revised remuneration values and the amounts already settled, and to include it in the following settlements in 2022.
RDL 6/2022 also contains a revision of the remuneration parameters applicable to generating facilities using renewable sources, cogeneration and waste, as a result of the extension to the suspension of the tax on the value of electricity output in the second quarter of 2022.
Removal of the value of adjustment due to deviations from market prices from 2023
In order to encourage the increase in energy traded on forward markets in order to reduce the volatility of the final price of energy, RDL 6/2022 modifies article 22 of Royal Decree 413/2014, of June 6, so that the adjustment value for deviation from the market price for the energy generated in the year 2023 and subsequent years is zero.
This measure is adopted from 2023 so that the facilities have enough time to adapt their strategy in the sale of their energy. Additionally, article 22.1 is modified to give greater certainty to the owners of the facilities, specifying the period to be considered to estimate the market price based on OMIP futures. In this way, the owners of the facilities will be able to cover the risk of deviation from the market price in the futures markets.
As a consequence of this modification, the risk of variation of the pool prices with respect to the prices of the futures contracts used in the price estimation of each regulatory semi-period, will be fully assumed by the owners of the generation facilities.
Extension and modification of the adjustment determined under Royal Decree-Law 17/2021
Final provision thirty-four of Royal Decree-Law 6/2022, amends Royal Decree-Law 17/2021, of September 14, 2021, on urgent measures to reduce the impact of the steep rise in natural gas prices on the gas and electricity retail markets (RDL 17/2021), to make the following changes.
- Extending until June 30, 2022 the reduction to remuneration for the electricity generating activities of facilities using zero greenhouse gas emission technology, by a proportional amount relative to the highest revenue obtained by these facilities as a result of the inclusion in electricity prices on the wholesale market of the value of the natural gas price in relation to marginal emissions technology.
- Stating that (in relation to determining whether the reduction mechanism applies to energy generated by non-marginal zero emission technology where the extraordinary income obtained from the rise in natural gas prices has been internalized) for energy subject to forward purchasing instruments the following factors will have to be taken into account:
- The reduction must be calculated by excluding any energy generated by electricity generating facilities which is hedged by any type of forward purchase agreement having a conclusion date before the entry into force of RDL 6/2022, whenever the forward price associated with those instruments is fixed.
- Also having to be excluded is any energy generated by generating facilities which is hedged by a forward purchasing instrument which was concluded before the entry into force of RDL 17/2021, includes a hedging period of a year of longer, and has a fixed forward price of €67 per MW/h or lower.
- Where the forward purchasing instruments mentioned above include a partial indexation to spot electricity prices on the Iberian wholesale market, only the energy relating to the non-indexed part of the contract will be excluded, if the other conditions mentioned above are met.
- Where the forward hedging instruments mentioned above include a forward price higher than €67 per MW/h the reduction must be calculated using a method based on the excess between the agreed forward price and a price of €67 per MW/h (amount exempt from the reduction), multiplied by a modulation parameter for the reduction which will initially be 0.9.
- Adding a specific delivery of energy that has been subject to a bilateral arrangement, directly or through equivalent intragroup hedging instruments, between generation and retail companies belonging to a same vertically integrated group, determining that the forward price to be used in the calculation of the reduction is the price that those retail companies charge to end consumers, and that any reduction, if applicable, has to be made to the remuneration of the retail companies.
- Clarifying that the solemn declaration on forward purchasing instruments must always be made on the standard form attached to the decree-law and that only one declaration will be needed for a business group.
Measures to speed up application handling procedures for renewable energy projects
RDL 6/2022 contains measures to speed up the performance of renewable energy projects, aimed at accelerating decarbonization and reducing energy dependency. They relate in particular to:
- Determining environmental impacts. A procedure for determining the environmental impacts of renewable energy projects is defined. Any projects in relation to which a prior application for administrative approvals, for construction or operation, is filed before December 31, 2024 and which fulfill the conditions set out in article 6 of RDL 6/2022 in relation to the connection (they do not include transmission lines with voltages of 220 kV or higher and over 15 kilometers long), size (installed capacity for wind power projects of 75 MW or higher and for photovoltaic projects of 150 MW or lower) and location (located in low or moderate sensitivity zones according to the environmental zoning policy published by the ministry for green transition (MITECO)), may apply to the competent environmental body for an environmental impacts determination report, which will have to be issued in two months.
This report is a means of determining whether the project needs to be submitted for an environmental impact assessment as determined in Law 21/2013, of December 9, 2013, or whether it can continue the approval process without it.
Implementing this procedure falls within the central government’s powers, although it may also be implemented by the autonomous community governments within their powers.
- Simplified approval procedures for renewable energy projects. Urgent status for public interest reasons is given to approval procedures for renewable energy generation projects falling within central government powers, which have obtained a favorable environmental impacts determination report, if their developers elect this simplified authorization procedure before December 31, 2024. This procedure will involve shorter time periods, due to the handling and decision processes for prior and construction approvals being carried out jointly, in addition to the steps for the public interest declaration if one has been requested.
Any project developers who have procedures for obtaining prior, construction or operation approvals in progress, on the entry into force RDL 6/2022, and obtain a favorable impacts determination report may choose either to continue with the steps for obtaining those approvals as set out in Royal Decree 1955/2000, of December 1, 2000, or to implement this procedure.
- Self-supply capacity in nodes set aside for auctions. Firstly, 10% of the capacity available at the nodes is released with respect to those that would have been determined in a capacity auction under the provisions in article 20.5 of Royal Decree 1183/2020. Until March 31, 2024, this capacity may be granted to renewable generating facilities for self-supply with a ratio between bought capacity in the period and installed generating capacity equal to 0.5 or higher.
Secondly, by amending Royal Decree 1183/2020, of December 29, 2020, on access and connection to the electricity transmission and distribution grids, in any auctions organized under that legislation, all or part of the capacity that is auctioned may be granted exclusively to generating facilities for self-supply.
- Expiry of access permits in the event of failure to comply with commitments acquired in access auctions. If access and connection permit holders fail to fulfill commitments acquired in an access auction for obtaining access, their permits will automatically expire and all financial guarantees associated with them will be enforced.
- Floating solar photovoltaic plants. It provides the rules governing floating solar photovoltaic facilities on public land containing water resources according to which facilities will subject to a concession, to be granted in competitive bidding processes, and for terms not longer than 25 years, including any extensions, in addition to the approvals required under the electricity legislation and other industry-specific legislation.
If they are located on waterworks infrastructure owned by the central government or any of the river basin authorities, they will first have to be granted a concession on public property, as laid down in Law 33/2003, of November 3, 2003, on public property.
- The applicable prices are revised for the various tariff segments in the charges for using the electricity system for the period between March 31 and December 31, 2022.
- An extension is allowed of the time periods for performance of the subsidized activity under any support programs created in the field of renewable energy and co-funded by the ERDF in the 2014-2020 period, which had already been granted.
- An obligation is laid down in transitional provision one of RDL 6/2022 to assess the capacity of the transmission grid following approval of the planning policy for the transmission network within two months from publication of the decision in the Official State Gazette. Within this time period, the authorities will stop issuing access and connection permits, and after it has ended, applications will be analyzed from the standpoint of the newly calculated capacities.
- Royal Decree 1955/2000 is amended in relation to the procedure for handling applications for approvals and for registration on the Administrative Register of Generating Facilities so as to give the same treatment to storage facilities, whether single or hybridized, as for generating facilities.
- Additional energy assistance relief discounts are introduced until June 30, 2022.
- Amendment of additional provision twenty-three of the Electricity Industry Law, to provide for these purposes, and with the aim of achieving the goals determined in the law, along with energy and climate and environmental sustainability goals, that regulatory testing sandboxes may be created to carry out testing involving pilot projects aimed at advancing research and innovation in the electricity industry. In relation to this, regulations will be adopted implementing the general rules on regulatory testing benches for the participation of pilot projects.