Energy Spain Newsflash 9272021 24842 PM
27 September 2021
EXPLANATORY NOTE OF THE ROYAL DECREE-LAW 17/2021, 14 SEPTEMBER, ON URGENT MEASURES TO MITIGATE THE IMPACT OF RISING NATURAL GAS PRICES IN THE RETAIL GAS AND ELECTRICITY MARKETS
The Ministry for Ecological Transition and Demographic Challenge (MITERD) has published a clarifying note addressing several questions raised by the System Operator related to the application of the mechanism for the reduction of the excess remuneration of the electricity market caused by the high price of natural gas on international markets, set out in Royal Decree-Law 17/2021, of 14 September, on urgent measures to mitigate the impact of the escalation of natural gas prices on the retail gas and electricity markets (RDL 17/2021), analysed in our previous newsflash (click here).
SCOPE OF RDL 17/2021
Firstly, the note clarifies the facilities to which the reduction mechanism will apply (peninsular facilities that do not emit greenhouse gases, whatever their technology), being those facilities (i) of hydraulic or thermonuclear technology as well as (ii) those included in category b) of section 2 of Royal Decree 413/2014, of 6 June, which regulates the activity of electricity production from renewable energy sources, cogeneration and waste. Installations in this category use as their primary energy source one of the following energy sources: (i) solar; (ii) wind; (iii) geothermal; (iv) hydrothermal; (v) aerothermal; (vi) biomass; or (vii) bioliquid produced from biomass.
However, those facilities that (i) are currently under operation and recorded as active in ERIDE; (ii) have been awarded in the auctions called for the granting of the remuneration framework established in section 14.7 bis of Law 24/2013, of 26 December of the Electricity Sector, or (iii) have an installed capacity equal to or less than 10 MW, shall be considered excluded from the scope of the reduction mechanism.
ENERGY ACCOUNTED FOR THE CALCULATION OF THE REDUCTION
A strict interpretation of RDL 17/2021 could lead to the conclusion that the reduction mechanism affects to all the energy obtained from renewable sources. This would mean that generation facilities subject to power purchase agreements (PPAs) might be forced to produce energy with minimal profits or even at loss.
To this end, the note issued by MITERD clarifies that RDL 17/2021 should be construed according to its purpose and that, therefore, the reduction mechanism will not apply to energy (i) that is covered by a forward contracting instrument executed prior to RDL 17/2021; (ii) through a fixed price not indexed to the electricity market price and (iii) in which the contracting parties are not part of the same business group. In any case, the mechanism will not apply to that part of the energy subject to bilateral forward contracting instruments with physical delivery as well as by instruments subject to financial settlements.
If the relevant financial instrument is not associated with a specific facility, the energy effectively covered by the exemption shall be considered to be that resulting from pro-rating the net selling position of such company among the installed capacity of the facilities of which it is the owner, unless another allocation is documented.
The abovementioned circumstances should be accredited before the System Operator by means of: (i) a responsible statement indicating the monthly energy covered by financial instruments; (ii) evidences of the contracting of said energy with a third party and (iii) evidence of communication of said operations to the corresponding body in accordance with the REMIT or EMIR regulations, as applicable.
OTHER CLARIFICATIONS
Moreover, the explanatory note clarifies the application of the formula provided in section 7 of RDL 17/2021 stating that the energy covered by the aforementioned financial instruments must be deducted from the total amount of energy (Qti). Additional clarifications are also provided on the calculation of other variables included in the formula of the reduction mechanism.
Finally, the note sets out the procedure to be observed by the System Operator to settle the reduction to the affected facilities in accordance with the provisions of section 8 of RDL 17/2021.
You can access the content of the explanatory note here.
