Energy Spain Newsflash 10292021 93412 AM

1. ROYAL DECREE-LAW 23/2021, 26 OCTOBER, ON URGENT MEASURES FOR THE PROTECTION OF CONSUMERS AND INTRODUCTION OF TRANSPARENCY IN THE WHOLESALE AND RETAIL ELECTRICITY AND NATURAL GAS MARKETS

The Spanish Government approved on 26 October 2021 Royal Decree-law 23/2021 on urgent measures for the protection of consumers and introduction of transparency in the wholesale and retail electricity and natural gas markets (RDL 23/2021). RDL 23/2021 was published in the Spanish Official Gazette (BOE) on 27 October 2021, and came into force the day after its publication.
RDL 23/2021 implements a set of measures aimed at reinforcing the protection of vulnerable consumers, as well as modifying previously approved protection instruments, with special emphasis on the mechanism for reducing the excess remuneration of the electricity market derived from the high prices of natural gas, approved by Royal Decree-law 17/2021, of 14 September, on urgent measures to mitigate the impact of rising natural gas prices in the retail gas and electricity markets (RDL 17/2021). In particular:

(a) RDL 23/2021 introduces a new eighth additional provision in RDL 17/2021, which further develops the scope of the reduction mechanism set out in section 7 thereof and partially incorporates the content of the explanatory note issued by the Ministry for the Ecological Transition and Demographic Challenge (MITERD) following a consultation made by REE after the publication of RDL 17/2021. In this sense:

• The reduction mechanism shall not apply to energy which is covered by a power purchase agreement (PPA) with physical delivery or financial settlement with a fixed hedging price during the term of the reduction mechanism, subscribed prior to the entry into force of RDL 17/2021 or, if entered into after that date, as long as it provides for a hedging term exceeding one year.
• In the event that the above mentioned PPAs were partially indexed to the wholesale peninsular market price, only an amount of energy equivalent to the non-indexed proportion of such PPAs shall be excluded from the reduction mechanism.
• RDL 23/2021 also sets forth which documentation must be provided by the owners of the generation facilities to the System Operator to evidence that the energy produced is subject to a PPA, which includes a responsible statement (declaración responsable), a template of which is attached as Annex II to RDL 17/2021.

(b) Discounts corresponding to the social electricity bond (bono social eléctrico) are increased from 25% to 60% in the case of vulnerable consumers and from 40% to 70% in the case of severely vulnerable consumers in order to reduce the impact of the cost of the electricity bill until 31 March 2022.

(c) RDL 23/2021 also increases the aid corresponding to the thermal social bond for the 2021 fiscal year, from 25 to 35 euros. Additionally, thermal social bond's budget is increased by 100 million euros. This extraordinary increase shall be financed by the budget of the Secretary of State for Energy.

(d) This new regulation also modifies Law 24/2013, on the Electricity Sector, to impose an obligation for electricity producers to submit to the National Comission of Markets and Competition (CNMC) information corresponding to the PPAs that they have entered into.

Likewise, electricity traders shall be required to (i) notify their consumers, with at least one month prior notice, of any revision of the agreed prices and provide a price comparison between the terms agreed before and after such review; and (ii) publish and deliver to the CNMC updated information on their current fees and commercial offers, so that they are available to all consumers.

(e) Similarly, Law 34/1998, on the Hydrocarbons Sector, is also amended to set out a new obligation for gas traders which shall publish and provide to the CNMC information on supply prices for consumers with an annual consumption of less than 50,000 kWh, as well as offers for new contracts limited in time, so that they are available to all consumers and they can know the resulting price after the end of the offer. It also establishes the obligation for gas traders to give one month prior notice of any price revision that may occur, as in the previous paragraph.

Click here to access RDL 23/2021.

2. ECONOMIC REGIME FOR THE RENEWABLE ENERGIES (REER)

The Directorate General of Energy Policy and Mines (DGPEM) published on 20 October 2021 its Resolution resolving the second auction for the granting of the REER, held on 19 October 2021, according to the provisions of Order TED/1161/2020, of 4 December.

The total capacity awarded was 3,123.7 MW, out of a total of 3,300 MW, with an average price of 31.65 €/MWh for photovoltaic facilities and 30.18 €/MWh for wind power facilities.

Click here to access to the content of the Resolution.

3. CLIMATE CHANGE AND ENERGY TRANSITION

Partial transposition of Directive (EU) 2018/2001 on the promotion of the use of energy from renewable sources.

MITERD has submitted to public hearing the draft Royal Decree for the partial transposition of Directive (EU) 2018/2001 on the promotion of the use of energy from renewable sources.

This Royal Decree aims at implementing into Spanish law the requirements for biofuels, bioliquids and biomass fuels to comply with sustainability and greenhouse gas reduction criteria in order to receive financial aid and be accounted for the purposes of meeting national renewable energy targets.

Among others, the Royal Decree regulates (i) verification of compliance with the aforementioned sustainability criteria; (ii) energy efficiency requirements and their accreditation; (iii) configuration of the double value of certain biofuels and (iv) implementation of a Guarantees of Origin scheme for gas obtained from renewable sources.

The purpose of this scheme shall consist of ensuring the origin and traceability of renewable gases, and shall be applicable to renewable hydrogen, biogas and any other gas from renewable sources that may be determined. To this effect, MITERD is designated as the responsible entity for the development and management of the Guarantees of Origin scheme.

Click here to access to the content of the draft Royal Decree.

4. OTHER NATIONAL MEASURES

Modification of the voluntary price for small consumers

MITERD has submitted to prior public consultation the modification of the voluntary price for small consumers (PVPC).

The PVPC is an available price calculation system for domestic consumers with a voltage and contracted capacity up to 1 kV and 10 kW, respectively. However, the PVPC is exposed to the volatility of the daily market and its current situation has led to a direct impact on consumers who, in many cases, are the most vulnerable. Therefore, a prior public consultation has been held on whether it is necessary to modify the structure and calculation methodology of the PVPC in order to reduce this impact on consumers.

Click here to access to the content of the consultation.

Rules of operation of the daily and intraday electricity markets: pre-payment mechanism

On 21 October, the CNMC submitted to public hearing a draft Resolution approving the operating rules for the daily and intraday electricity markets for the introduction of an pre-payment mechanism to release guarantees.

The purpose of this revision of the market rules is to provide debtor agents with a mechanism that allows them to partially reduce financial constraints caused by the current prices of the pool.

To this end, the CNMC proposes a series of modifications to Rule 55.5 so that purchasing agents can make a partial or total pre-payment when they become buyers, thus releasing them from such payment obligations before the due date of the invoices and reducing the amount of guarantees required.

Click here to access to the content of the draft Resolution.

Electricity origin labelling

On 11 October, CNMC submitted to public hearing the draft Resolution approving the electricity labelling format to be included in the bills of electricity traders to inform consumers of the origin and environmental impact of the electricity consumed, in accordance with the provisions of Circular CNMC 2/2021, which establishes that the CNMC shall publish a standardised labelling model common to all electricity traders by means of a resolution.

Click here to access to the content of the draft Resolution.

5. EUROPEAN-LEVEL MEASURES

The European Commission issued its Recommendation (EU) 2021/1749 on the principle Energy Efficiency First, as defined in section 2 of Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11 December 2018 on the Governance of the Energy Union and Climate Action.

The Recommendation intends to guide regulators in the implementation of the above-mentioned principle and, among others, contains the following specific recommendations (i) the need to ensure that this principle is observed in policymaking and investment decision-making; (ii) the removal of obstacles and barriers that hinder its implementation; (iii) the provision of information, guidance and assistance to relevant local entities on the implementation of the principle; as well as (iv) ensuring the allocation of enough resources for data collection, compilation of statistics and monitoring energy efficiency developments.

Recommendation (EU) 2021/1749 was published in the Official Journal of the European Union on 4 October 2021. Click here to access to its content.

6. THE TAX CORNER

A new Tax Authorities criteria may impact the taxation of the transfer of SPVs with photovoltaic projects at RtB status.

A very recent binding ruling (V2265-21) of the Spanish General Directorate of Taxes has stated that a Spanish holding entity selling a subsidiary devoted to the photovoltaic energy activity and which is obtaining all the permits and licenses to build a solar plant, cannot benefit from the participation exemption under the Spanish Corporate Income Tax (being the resulting capital gain triggered in the hands of the Spanish HoldCo subject to taxes at 25%).

The rationale behind this criteria is that, as the construction works of the solar plant had not started at the time of the exit, the transferred subsidiary was carrying out mere preparatory tasks and not an economic activity. As a consequence, the subsidiary must be deemed a "passive income entity" and the capital gain could not benefit from the participation exemption regime.

Although this ruling is based on a very unspecific factual background and we do not agree with its technical outcome, we understand that it may impact structures of SPVs with photovoltaic projects (or other energy sources), where the business plan envisages that a Spanish holding entity will transfer the SPVs (regardless if they are Spanish SPVs or foreign SPVs) at ready-to-build status.

As a consequence, we strongly suggest to analyse the impact that this ruling may have in your current and future investments and potentially revisit those business plans in which it is expected that a Spanish HoldCo will transfer the SPVs at a ready-to-build status to analyse, if possible, other different exit alternatives (such as effectively start the construction works of the solar plant at the level of the SPVs before transferring the entities), in order to secure the application of the participation exemption regime.

Click here to access to the content of the ruling.