Regulatory developments in the field of renewable gases in Spain

On 16 April 2025, Circular 2/2025, of 9 April 2025, issued by the Spanish National Commission for Markets and Competition (Comisión Nacional de los Mercados y la Competencia, or the CNMC) was published in the Spanish Official State Gazette (Boletín Oficial del Estado, or BOE), on the methodology and conditions for access to and allocation of capacity in the natural gas system (Circular 2/2025). The purpose of Circular 2/2025 is to set out the procedure and conditions for third-party access and connection to the natural gas' transport and distribution grids, which, until now, were mainly regulated by Circular 8/2019, of 12 December 2019, of the CNMC, by which the methodology and conditions for access and allocation of capacity in the natural gas system are established (Circular 8/2019).

One of the innovative elements of Circular 2/2025, which is also the focus of this note, is the adaptation of the existing framework for access and connection to the natural gas grid to make it suitable for renewable gas production facilities, with the aim of adapting the natural gas sector to its new needs arising from decarbonisation and the promotion of renewable and low-carbon gases. In this regard, it should be noted that, to date, the only existing regulation in this area was the one established by Article 12 bis of Royal Decree 1434/2002 of 27 December, on the regulation of activities relating to the transport, distribution, sales, supply, and authorisation procedures for natural gas facilities, together with Resolution of 19 April 2024 of the CNMC, setting out the procedure for managing the connections of biomethane production plants to the transport or distribution grids (Resolution of 19 April 2024).

The first relevant clarification is that, although the previous framework – particularly Resolution of 19 April 2024 – mainly referred to the connection of biomethane production facilities, Circular 2/2025 will apply to all gases that can be injected into the natural gas grid, referred to as "other gases" -as defined below-, and differentiates between two categories of them. The terminology used is consistent with that employed in the regulations currently in force on the technical management of the natural gas system.

Types of other gases

As stated, Circular 2/2025 uses the concept of "other gases" to refer to those gases that meet the requirements for their injection into the natural gas grid but that are different from natural gas or do not have fossil nature.

Within this category, Circular 2/2025 distinguishes (and sets out different procedures for accepting connection requests submitted in relation to their injection) between production facilities for other gases when (i) these do not require blending with natural gas and those production facilities for other gases (ii) that do require prior blending with natural gas, despite the fact that, in both cases, prior approval from the technical manager of the system will be required for the connection request to be accepted.

Specifically, in relation to (i), the criteria to be followed will be the chronological order of the connection requests submitted to the grid operator, while in case of (ii), acceptance will be made on an annual basis through a competitive procedure, whose specific aspects shall need to be regulated by a resolution adopted by the CNMC and which will be based on the principles established in Article 14.5 of Circular 2/2025.

For these purposes, although Circular 2/2025 does not clearly define the gases included in the aforementioned categories, the explanatory report prepared by the CNMC includes -in the first category-, biomethane and those synthetic gases with a similar composition and fungible with natural gas, while the second category currently only includes hydrogen, although given the broad definition, Circular 2/2025 leaves the door open to other gases.

Rights and obligations of renewable gas producers

Circular 2/2025 also regulates the rights and obligations of those entities connecting to the natural gas grid for the injection of other gases, which shall be cumulative to those rights and obligations corresponding to them as entities with general access rights. For these purposes, entities connecting to the natural gas grid for the injection of other gases shall be entitled to: (i) request connection from the owner of the transport or distribution infrastructures; (ii) inject the gas produced into the natural gas grid under the conditions required by current regulations and those agreed in the connection contract; (iii) require the owners of the grid to which they are connected to comply with the applicable technical safety and control requirements; and (iv) receive from the owners of the grid to which they are connected the information necessary for the correct and safe injection.

Likewise, the obligations of those connecting to the natural gas grid for the injection of other gases shall consist of: (i) complying with the obligations that are legally required regarding quality and measurement for the injected gas; (ii) reporting any maintenance and incidents that may affect the injection of the gas into the natural gas grid; and (iii) following the instructions of the owner of the grid to which they are connected and of the technical manager of the system in relation to the use of the connection.

Granting of access and connection. Products

The allocation of access capacity to the Virtual Balancing Point (Punto Virtual de Balance or PVB) for production facilities of other gases is based on the principle that contracting the connection gives users the inherent right to contract access capacity, up to the maximum value of the conditional capacity indicated in the relevant connection contract.

In this regard, in the same way as Circular 8/2019, which, as we indicated above, will be repealed, Circular 2/2025 sets out and limits the individual services that may be offered for contracting access to gas system facilities.

For these purposes, the main development is the creation of a new product called "entry to the Virtual Balancing Point from production plants of other gases" (entrada al Punto Virtual de Balance desde planta de producción de otros gases), which will enable gas to be transferred from these facilities to the PVB, allowing this capacity throughout the contracted period. In this case, this product is expected to be contracted on an (i) annual, (ii) quarterly, (iii) monthly, (iv) daily and (v) intraday basis.

Notwithstanding the above, Circular 2/2025 introduces two additional relevant changes in relation to the injection of other gases into the gas system, namely:

• the capacity offered for these facilities is considered to be conditional capacity, i.e., unlike firm capacity, the use of the contracted capacity may be limited under certain circumstances, mainly related to the quantity and quality of the gas flowing and the consumption taking place in the grid to which the production facility is connected as well as by the connection capacity of other production facilities for other gases previously allocated or by the possibility of gas flow to upstream interconnected grids or reverse flow; and
•  the possibility of opting for access contracts of indefinite duration, not linked to the start date or standard contract periods, with the contract remaining in force until the transfer to another supplier or the modification or cancellation of the contracted access capacity. It should be noted that, to date, this option was only available for contracting exit capacity from the PVB to end consumers.

Consequently, the allocation of individual capacity products for access to the PVB for production plants of other gases shall have as its maximum value the conditional capacity indicated in the corresponding connection contract and, in order for it to be granted, the party with access rights must submit, prior to the start-up date of the relevant facility, a request through the system technical manager's platform in accordance with the provisions of Circular 2/2025. This access may be contracted by several parties, provided that the total conditional capacity does not exceed that established in the connection contract. If the abovementioned application is not submitted before such date, it shall be understood that such capacity is waved, being then be available for third parties wishing to connect to the grid.

Connection Contract

Similarly, Circular 2/2025 sets out the minimum content of connection contracts for production plants of other gases injected into the natural gas grid, which shall include, among other things, the following: (i) identification of the contracting parties and the production facility for other gases; (ii) identification of the connection point; (iii) allocated conditional capacity (kWh/d); (iv) rights and obligations of the parties; (v) budget for the connection facility, as well as construction deadlines for the plant and estimated start-up date; (vi) technical conditions that could lead to a reduction of capacity; (vii) regulation of economic compensation in the event of subsidies received by the grid operator; or (ix) termination events.

Likewise, Circular 2/2025 introduces the possibility for the CNMC to regulate a template connection contract and restricts the possible transfer of these contracts, as they will only be valid in relation to the injection facility whose characteristics are specified in the corresponding application.

Finally, Circular 2/2025 clarifies that connection contracts for production plants of other gases that are injected into the natural gas grid shall be entered into between the developer of the corresponding production facility and the owner of the corresponding grid infrastructures.

Anti-hoarding mechanism and guarantees

Among the new provisions of Circular 2/2025 is the introduction of measures aimed at preventing capacity hoarding and alleviating congestion in the connection and access of production plants of other gases to the natural gas grid. To this end, Circular 2/2025 regulates two different scenarios:

• the loss of the right to use the conditional connection capacity allocated due to its lack of use during the term determined by the CNMC by means of a resolution, provided that such lack of use is not attributable to force majeure causes or administrative delays not attributable to the parties interested in obtaining the necessary authorisations for the construction or start-up of the plant; and
•  in the event of underutilization of conditional connection capacity which is not justified by technical unavailability of the grid, the relevant authorities may determine the release of the contracted conditional connection capacity. However, the enforcement of this measure will require a prior resolution issued by the CNMC regulating a detailed procedure in this regard.

Likewise, Circular 2/2025 provides for the possibility for production plants of other gases to waive their contracted conditional connection capacity, provided that they have reimbursed the costs incurred in or firmly committed to by the operator up to the time of notification of the waiver.

With regard to guarantees, Circular 2/2025 sets out general regulations similar to those already contained in Circular 8/2019, which will also apply to production plants of other gases, although it determines certain specific provisions relating to guarantees concerning the connection of these plants to the natural gas grid. To this end:

• applicants may freely agree with the owners of the corresponding grid on the conditions for connection payments and the guarantees relating thereto, which must be reflected in the connection contract, without prejudice to the CNMC's right to set minimum requirements for such connection in the future; or
•  in the event that no agreement is reached, applicants shall need to deposit guarantees corresponding to the outstanding amount of the agreed connection costs not paid upon execution of the relevant agreement, within a maximum period of 30 business days from the date of notification by the grid owner that the administrative construction authorisation has been obtained. These guarantees shall be gradually released in accordance with the payment schedule set out in the connection contract or, in the event of waiver of the connection contract, after payment of the expenses incurred by the grid operator up to the date of notification of the waiver.

Entry into force and temporary measures

Circular 2/2025 will enter into force on 1 July 2025, with the exception of the provisions of Articles 36 (reservation of capacity for short and long-term contracts) and 38 (flexibility for the use of contracted slots), which will enter into force on 1 August and 1 November 2025, respectively. The entry into force of Circular 2/2015 will result in the repeal of Circular 8/2019.

It is also worth noting, in relation to other gases that need to be blended with natural gas in order to circulate through the natural gas grid, that the acceptance and contracting of connection to the natural gas grid will be governed by the rules set out in Article 14.4 of Circular 2/2025, the effectiveness of which, as we have pointed out, is subject to the adoption by the CNMC of a resolution defining: (i) the specific aspects of the procedures for regulating the contracting of connections to the grid by production facilities for other gases, as well as (ii) the development of criteria and their weighting for assessing the maturity of projects for production plants for these types of gases.

On the other hand, the second transitory provision of Circular 2/2025 stipulates that all production plants for other gases that do not need to be blended with natural gas and that, upon the entry into force of Circular 2/2025, have accepted connection requests that are not yet injecting into the grid or are still being processed, shall have the right of access under the conditions set out in Circular 2/2025.

On the contrary, in the case of production plants for other gases that need to be blended with natural gas and have connection requests that have already been accepted or are being processed at the time of entry into force of Circular 2/2025 (i.e. 1 July 2025), they shall participate in the competitive procedure referred to above to acquire the right to contract access. Notwithstanding the above and without prejudice to their obligation to participate in the aforementioned procedure, if such applications are accepted or pending on the date of approval of Circular 2/2025 (i.e. 9 April 2025), the corresponding facilities shall have indefinite access to the contracted connection.