RDL17202114Sept on urgent measures to mitigate the impact of rising natural gas prices

On 15 September 2021, 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) was published in the Spanish Official Gazette (BOE), and came into force the day after its publication.

This Royal Decree-law establishes several urgent and extraordinary measures in different areas to respond to the increase in electricity prices caused by the spike in the prices of both natural gas and greenhouse gas emission allowances.

Said measures therefore seek to benefit all electricity consumers, especially the most vulnerable ones, to whom some provisions are targeted.

Click here to access RDL 17/2021.

1. Measures to protect vulnerable consumers

RDL 17/2021 introduces a new section 45 bis and amends section 52 of Law 24/2013, of 26 December, on the Electricity Sector (LSE) in order to establish a minimum vital supply (suministro mínimo vital) to which those vulnerable consumers -who are recipients of the electricity social voucher (bono social eléctrico)- will be entitled.

For this purpose, a power capacity threshold will be set out by the implementing regulations to guarantee minimum comfort conditions for households benefiting from this minimum vital supply, which will last for six months. This six-month period will begin once the four-month period within which, according to the current regulations, vulnerable consumers have to pay their bill without the supply being interrupted has elapsed.

Likewise, RDL 17/2021 amends Royal Decree 897/2017, of October 6, which regulates the figure of the vulnerable consumer, the social bonus and other protection measures for domestic electricity consumers to adapt its provisions to the modifications introduced at a law level, especially regarding the procedure for the application of the minimum vital supply when the corresponding payment requirements have not been met by consumers.

2. Measures contributing to bill´s cost reduction

The temporary suspension of the tax on the value of electricity production, established by Royal Decree-law 12/2021 for the third calendar quarter of 2021 due to the evolution of electricity prices already observed at that time, is extended for an additional quarter (i.e. until 31 December 2021). To the extent that this situation has worsened, it has been deemed appropriate to extend this suspension until the end of this year, aiming at electricity producers -who benefit from this measure- offering more competitive prices, which, it is hoped, will benefit end consumers.

RDL 17/2021 also reduces, until 31 December 2021, the tax rate of the Special Tax on Electricity to 0.5 per cent. It should be noted that, as this is a harmonised tax in accordance with Directive 2003/96/EC, there are minimum thresholds below which the rates established by RDL 17/2021 must not go. These thresholds imply that the minimum levels of taxation cannot be lower than 0.5 euro per megawatt-hour when such electricity is used for business purposes, and 1 euro per megawatt-hour for other uses of electricity. Therefore, if the actual taxation is lower than these amounts, the payable amount must be at least equal to these minimum thresholds.

In addition, Law 11/2020, of 30 December, on the General State Budget for 2021, is amended to increase the amount of revenue from the auctioning of greenhouse gas emission allowances to finance the costs of the electricity system to a total of 2,000 million euros, compared to the 1,100 million initially envisaged in the aforementioned Law.

3. Promotion of long-term energy procurement

Another new feature introduced by RDL 17/2021 with the aim of counteracting high electricity market prices and increasing market's liquidity is the auctioning of long-term energy purchase contracts. The energy linked to these auctions will correspond to a maximum of 25 per cent of the value of the lowest annual energy generated in the previous ten years by manageable infra-marginal facilities, as well as those facilities that do not receive a specific remuneration system or have not won auctions for the promotion of renewable energies. The auctions will be executed through forward contracts with a settlement period of one year or longer.

The product to be auctioned will be base-electricity, the bid variable will be €/MWh and a minimum secret price will be established, below which all bids will be rejected. On the one hand, sellers will be those entities considered dominant operators in the electricity generation market in accordance with the provisions of section 7 LSE, while on the other hand, (i) those electricity trading companies (comercializadoras) whose parent companies or companies belonging to the same group have not been classified as dominant operators, (ii) direct consumers in the market (large consumers) and (iii) the reference electricity trading companies (comercializadoras de referencia) for the supply at the voluntary price for small consumers; may participate as bidders.

Other aspects of these auctions will be defined by means of a resolution of the Secretariat of State for Energy, such as, for example, the method of the auction, the date on which it is held or the detailed specifications of each auction.

4. Reduction of the remuneration of the electricity production activity

A revenue's reduction is also approved for those electricity generation facilities located in the Spanish mainland that do not emit greenhouse gases provided that (i) they are not subject to the specific remuneration regime or the REER and (ii) whose installed capacity exceeds 10 MW.

In order to determine the amount to be deducted, RDL 17/2021 provides a mathematical formula that takes into account elements such as, among others, the monthly electricity production of the aforementioned facilities and the price of natural gas.

This measure will be in force from 16 September 2021 to 31 March 2022. However, as we had stated previously (click here), the Draft Bill on the remuneration of non-emitted CO2 in the electricity market intends to include a similar measure indefinitely for all non-emitting facilities commissioned prior to the publication of Directive 2003/87/EC, which created the European CO2 market (ETS).

5. Rational use of water resources

RDL 17/2021 amends Royal Decree-law 1/2001, of 20 July, approving the revised text of the Water Law, with the aim of avoiding lack of water availability in reservoirs.

Specifically, in order to ensure the rational exploitation of reservoirs, the relevant river basin authority will annually set out a minimum and maximum regime of average monthly flows to be released for situations of (i) hydrological normality and (ii) prolonged drought, as well as a regime of minimum reservoir levels for each month. In addition, a minimum monthly reserve which must remain stored in each reservoir to protect its fauna and flora shall also be determined.

This measure will be applicable to reservoirs with a total capacity exceeding 50 hm³ whose main uses are not public supply, irrigation or other agricultural uses.

6. Control mechanism on the value of the cost of raw material in relation to the last resort tariff

Law 34/1998, of 7 October, on the Hydrocarbons Sector, allows certain end consumers of natural gas, provided they meet certain criteria, to benefit from the so-called last resort tariff (tarifa de último recurso). It is estimated that approximately one and a half million consumers are currently covered by this tariff.

The calculation method of the last resort tariff is set forth in Order ITC/1660/2009, of 22 June, and takes into consideration, among other figures, the cost of the raw material (i.e. natural gas). In this regard, the cost of natural gas amounts to almost 30 per cent of the last resort tariff and it is reviewed quarterly. Hence, as a consequence of the price of natural gas in Europe being at an all-time high, the revision of the cost of natural gas would lead to a substantial increase in the last resort tariff.

In order to lessen the impact of natural gas prices on international markets, RDL 17/2021 introduces a two-quarter limitation on the increase in the cost of the raw material included in the last resort natural gas tariff. The increase in the cost of the raw material pending being passed onto the tariff will be recovered in subsequent reviews, albeit subject to this limitation.