Renewable energy and the CNMC in Spain

Draft circulars released by the National Market and Competition Commission (CNMC) to establish the tariff framework for the gas and electricity sectors for the next regulatory period (2020-2025) have ruffled feathers in one industry, the energy sector, which is already swamped by regulation after regulation, successive cutbacks, and legal uncertainty. 

At the very least, the experts explain, the draft documents from CNMC Spain outline a scenario which will encourage neither investment nor planning over the long term. This would be nothing new in the industry’s recent history. At present, the situation is exacerbated after the approval of the National Integrated Plan for Energy and Climate, 2021-2030 during the past parliamentary session. This sets out targets for the reduction of emissions that will demand changes in the way we both produce and consume energy. Some analysts are looking ahead and envisaging a significant drop in income statements, particularly where the gas industry is concerned—if the proposals are approved as they stand. 

The dispute has now reached a point where representations have been made, not only by the energy companies, but also by the caretaker Government, which has presented reports on the matter to the Commission. Nerves are so frayed by this issue that during the period allowed for the CNMC to analyse its proposals, it has been necessary to bring in cooperation commissions to liaise between the organisations.

Report on the Spain energy sector

The circulars so eagerly awaited over recent months related to the electricity companies’ tariff methodologies and to their access and connection. These affect the development of renewable energies and even the expansion of self-supply and, therefore, the process of the Energy Transition to different types of renewable energy sources which is already under way. This is because there are currently around 200,000 renewable megawatts waiting to secure a point of access and connection to the network so that they can begin producing when Spain exceeds its existing power capacity of 104,094 megawatts across all technologies (including diesel).

The submissions made to the Commission by the Spanish Photovoltaic Union (UNEF) argue that the former’s proposals will facilitate something that UNEF considers vital for the sector to move forwards: “removing the bottleneck and reducing waiting lists and the time taken to process applications of access and connection, in addition to simplifying the application process itself”.

It argues, however, that there are a few points in the CNMC’s proposals that should be reconsidered. For example, UNEF suggests that the Circular should include an annex with the standard models of guarantee and/or surety bond insurance that developers will be required to submit. The issue is that the Commission is proposing that prior to the processing of access and connection licences, a financial guarantee should be required equivalent to €40 per kW installed, and that the validity of the guarantee should be confirmed by the appropriate body. The photovoltaic organisation believes that this step should be dropped or, that at least it should be deliberately set up in such a way that it is undertaken according to objective, non-discriminatory criteria, thus guaranteeing transparency and fair play for all.

Experts in the field of surety claim that the CNMC’s proposals as currently set down in the draft Circular mean that the failure of any developer to comply with any deadline or requirement contained therein will lead to the guarantee being invoked. To prevent this, the insurance institutions are proposing the inclusion of a transitional arrangement for the new regulation and, in particular, that the new enforcement events will not apply to applications already granted—in other words, that they will not apply retrospectively.

Currently, the CNMC has until 31 December 2019 to approve the circulars, but first they must be passed by the Council of State. In this event, the Government could only change the content by recourse to the courts. The next regulatory period begins on 1 January 2020 in the case of electricity, and in January of the following year (2021) for gas, so that if the proposals are not approved, the conditions established under the current regulations will be renewed, which will mean an opportunity lost.