The Government approves a Royal Decree-law with measures to promote renewable energies and favor economic reactivation

‘-The deployment of renewables in Spain, which has been set to have a 100% renewable electricity system before 2050, will allow to take advantage of its potential in terms of job creation, economic activity and competitiveness, in line with the green economic recovery plans of the European Union. Spain has an important renewable resource and a consolidated value chain with growth capacity

– Among other issues, the standard approved today establishes milestones and time frames to avoid speculative movements in the use of network access permits

– The Royal Decree-Law also creates a new auction system that offers stability to the investor and allows all consumers to benefit from the savings associated with the integration of renewables into the system, since they are the cheapest source of energy generation

– New business models that the sector is already demanding are incorporated into the Spanish regulation, such as storage, hybridization and the independent aggregator. At the same time, renewable energy communities are regulated, which favor the participation of
citizens in the energy transition

– In order to ensure the liquidity of the system and mitigate the imbalances caused by the COVID-19 crisis, the possibility of injecting the surplus of previous years is enabled

June 23, 2020– The Council of Ministers, at the proposal of the Ministry for the Ecological Transition and the Demographic Challenge (MITECO), has approved today, Tuesday, June 23, a Royal Decree-Law with a battery of measures to promote, in an orderly and rapid way, the energy transition towards a 100% renewable electricity system and favor the economic reactivation in line with the European Green Deal. The standard removes barriers to the mass deployment of renewable sources, defines new business models and promotes energy efficiency, among other issues. With this, and in the context of the recovery after COVID-19, a stable framework is established that will allow Spain to take advantage of its potential, in terms of job creation and economic activity, linked to a clean, fair, reliable and economically competitive energy transition. At the same time, the framework will reduce the electricity bill since renewables are the cheapest source of generation.

The Royal Decree-Law is divided into four blocks. The first includes the regulation of access and connection and regulates a new auction mechanism to provide renewables with a predictable and stable framework. The second focuses on the promotion of new business models that will be key in the coming years, such as demand aggregation, storage and hybridization. Thirdly, the Royal Decree-Law addresses the promotion of energy efficiency by making the
National Energy Efficiency Fund; and, finally, a series of sectoral measures are established to boost economic activity and employment in response to the COVID-19 crisis.

GUARANTEES FOR FIRM RENEWABLE PROJECTS

In its article 1, the Royal Decree-Law is dedicated to the regulation of access and connection permits to the electricity grid, two authorizations that developers need to start up their renewable plants. The fundamental objective is to ensure that these rights are associated with real and firm projects, and to avoid speculative movements that may occur due to the insufficiency of the current regulation.

Currently, there is a high number of applications, totaling more than 430,000 megawatts (MW) – 320MW in 2019 and 108MW in 2020 – and there are indications of the possible speculative component of a good part of them, given the low maturity of the projects or the volume of cases of access permit holders who have not requested the equally necessary connection permit: around 60%.

This situation hinders and makes more expensive the start-up of solvent projects that, in the next decade, will install around 60,000 MW of renewable power in Spain, according to the planning of the National Integrated Energy and Climate Plan (PNIEC) 2021-2030. It is estimated that this boost will attract investments of more than 90,000 million euros, generating between 107,000 and 135,000 net jobs per year over the next decade.

Therefore, it is urgent to order the permits according to their viability and solidity to favor the deployment of clean energy, which will allow 74% of electricity in Spain to be renewable in 2030 and reach 100% before 2050, thus contributing to achieve the objective of climate neutrality that the country has set itself in line with the Paris Agreement and the commitments of the European Union (EU).

To this end, the Royal Decree-Law establishes a series of successive administrative milestones, with temporary deadlines depending on the moment in which it was granted. The holders must prove compliance with each of these milestones – including obtaining the favorable environmental impact statement and the administrative construction authorization – in the set times. Otherwise, the permits will expire automatically and, where appropriate, the economic guarantees required when requesting the authorization will be executed. The last of the deadlines ends five years after the start of the calculation for the first milestone.

Within three months of the entry into force of the standard, both the holders and applicants of these authorizations may renounce them, proceeding to the return of the guarantees. In addition, a moratorium on new access applications is established: they cannot be requested until a new regulation on these permits is approved, which must require applicants to further mature previous projects and studies. In this way, new ones are avoided
potentially speculative requests on the capacity that is released while the regulations are being developed, which must be approved by the Government and the National Market and Competition Commission (CNMC), in their respective competences, within three months of the publication of the Royal Decree-Law.

NEW AUCTION SYSTEM FOR THE MANAGEMENT OF RENEWABLES

Another of the key issues to favor the massive installation of clean energy during the next decade, thereby activating the entire associated industrial value chain, is to enable a new system of renewable auctions that, on the one hand, offers predictability and stability of income and financing to investors of new renewable plants; and, on the other, transfer to consumers directly the savings associated with the incorporation of renewables into the electricity system, given
which is the cheapest source of energy generation.

In this new framework, which the Government will develop by regulation, the variable on which it will bid will be the price of energy. The procedures must be oriented to cost efficiency and will be able to distinguish between different generation technologies according to their technical characteristics, size, levels of manageability, localization criteria and technological maturity, among others. They will also be able to take into account the particularities of energy communities.
renewables so that they can compete for access to the remuneration framework on an equal level with other participants, all in accordance with Community regulations. In addition, to favor small-scale installations and innovative pilot projects, the standard allows, in accordance with the European Renewable Energy Directive, that they are exempted from going to the auction in order to receive the remuneration.

The current framework was developed in 2013, a time when the cost of generating a renewable kilowatt hour was more expensive than the price at which it was sold on the market. The current situation is just the opposite and it is necessary to update the model. In fact, the remuneration systems of the countries around Spain, similar to the one designed in the Royal Decree-Law, reflect the results of auctions with prices lower than those registered in the electricity market, since the development
Technology in recent years has significantly lowered the cost of generating electricity from renewable sources. The transfer of these economic savings to the consumer, and in particular to industry, will favour the competitiveness of the Spanish economy.

SIMPLIFICATION AND STREAMLINING OF PROCEDURES

The Royal Decree-Law simplifies and streamlines the processing of renewable projects and the associated electricity infrastructure, thus eliminating barriers to their implementation. Among other issues, it regulates the cases in which the developer will not need to renew certain authorisations if it modifies the project in a non-substantial way and simplifies the authorisation procedure for mobile installations that connect to the transmission and distribution network. These types of devices, such as transformers or reactances, will play an increasingly relevant role for the energy transition, by allowing the maximization of renewables, since they provide flexibility and agility to their operation. They are also necessary in situations of repair of breakdowns caused by adverse weather events.

This third battery of measures, together with the management of access and connection and the new auction framework, will boost investment in new facilities, generating economic activity and employment in the industrial value chain associated with the renewable sector, which in Spain is consolidated. According to data from the sector, 90% of the elements of a wind turbine are manufactured in Spain and, in the case of photovoltaic solar panels, the country’s industry generates components – electronics
of power, structures, trackers, etc. – which add up to more than 65% of what is necessary to build and operate a solar installation.

NEW BUSINESS MODELS LINKED TO RENEWABLES

In the same line of economic activation, the Royal Decree-Law incorporates into the Spanish legal system new business models that will be key in the energy transition and that offer, from this moment, opportunities for economic impulse, employment and improvement of competitiveness. This is the case of the figure of storage, which is regulated by this standard, which will allow to manage and optimize the energy generated in the new renewable plants; and hybridization, which makes it possible to combine different technologies – photovoltaic and wind, for example – in the same installation. This optimizes the use of existing electricity grids and minimizes environmental impacts by making the most of plant locations.

Both figures will allow the rapid and efficient development of renewable projects, taking advantage of the network already built, minimizing the cost for consumers and generating positive and immediate effects on industrial activity and employment, by providing legal certainty to the applicable regulatory framework.

Additionally, and in compliance with Community regulations, the figure of the independent aggregator is incorporated, which will introduce greater dynamism in the electricity market. This new business model is based on combining the demand of several electricity consumers or that of several generators for their participation in different market segments.

Similarly, and to promote the participation of citizens in the ecological transition, renewable energy communities are regulated, which allow citizens and local authorities to be partners in renewable energy projects in their localities.

On the other hand, the Government is empowered to regulate a special procedure for the authorization of facilities whose main purpose is R + D + i, which represent a technological, energy and industrial opportunity in areas such as storage, marine energies or network management, among others, which constitute a strategic factor for the economic impulse, both short and medium term.

In addition, it will be possible to establish regulatory test beds (“sandboxes”) to introduce novelties, exceptions or regulatory safeguards that contribute to facilitating research and innovation in the field of the electricity sector. This favors a more agile development of the regulation of the energy sector based on the prior testing of regulations on new technologies or solutions.

HIGH CAPACITY CHARGING POINTS, PUBLIC UTILITY

In order to facilitate the expansion of the electric vehicle, the Royal Decree-Law grants the declaration of public utility to the electrical infrastructures associated with high-capacity recharging points (with power greater than 250 kW), fundamental to allow ultra-fast recharging stations to be opened on roads, highways and highways, increasing the possibilities of mobility
electric.

Likewise, the regulation extends the validity of the National Energy Efficiency Fund until 2030 and improves the procedure for calculating obligations. This fund, which is endowed with annual quotas of the companies that market gas, electricity and petroleum products, has made it possible to mobilize more than 1,000 million euros in aid in the last five years to invest in energy saving measures. Exceptionally, and in view of the situation created by COVID-19, marketers that are small and medium-sized enterprises (SMEs) will be allowed to delay the payment of obligations to the fund corresponding to 2020, favoring the recovery of their liquidity.

SYSTEM LIQUIDITY

With the aim of alleviating the effects of the health crisis caused by the coronavirus and ensuring the liquidity of the electricity system in the short term, the use of the surplus of income is enabled to cover the possible mismatches and deviations between revenues and costs of the system of 2019 and 2020. It will be specified by ministerial order.

This allows all the “settlement subjects”, that is, the operators of the transmission and distribution networks, including the more than 300 small distributors operating in the country, as well as the more than 60,000 renewable, cogeneration and waste facilities, to receive a significant part of the remuneration corresponding to the 2019 financial year. It is a measure that provides liquidity to these subjects, allowing them to maintain their activity and facilitating new investments in the industrial field, digitalization of networks and in the development of renewables, essential at this time of economic recovery.

In addition, the Royal Decree-Law exceptionally adjusts the percentages of Gross Domestic Product (GDP) that govern the maximum investment dedicated to transmission and distribution networks in the triennium 2020-2022. In this way, it will be possible to maintain the investment pace originally planned, before the COVID-19 crisis, and undertake the necessary actions for the integration of the new renewable generation.

SUPPORT FOR COGENERATION, OIL SLUDGE AND BIOMASS

In the case of installations covered by the specific remuneration scheme whose operating costs depend essentially on the price of fuel. This includes cogeneration plants, slurry treatment facilities, oil sludge treatment facilities and biomass. The revision of the value of the remuneration to the operation is established, which will be applicable during the period of validity of the state of alarm, to recognize the effects of lower market prices and CO2, thus alleviating the impact that the health crisis has had on its operating conditions. This provides particular support to the industrial and agricultural sector, which uses this type of technology.

Specifically, for the calculation of the aforementioned revision, the values of the electricity market price and the price of _CO2 emission rights during the state of alarm are considered. Additionally, the values of the number of equivalent hours of minimum operation and the operating threshold applicable to the year 2020 are reduced by 50%, compared to the values previously established.

JUST TRANSITION

To facilitate the governance and correct implementation of the Just Transition Strategy of the Government of Spain, which will allow the deployment and financing of projects that guarantee employment and economic activity in areas in energy transition, the Just Transition Institute has been created, based on the previous Institute for the Restructuring of Coal Mining and alternative development of the Mining Regions. This Royal Decree-Law defines the purpose of this institute: to identify and adopt measures that guarantee workers and territories affected by the transition to a greener, low-carbon economy, equitable and supportive treatment, minimizing the negative impacts on employment and depopulation of these territories.

The capacity of action to evacuate the knots left free by the coal-fired power plants that close is an important asset for the generation of employment and new industrial projects in the transition zones. Royal Decree-Law 17/2019 enabled the Government to regulate procedures and establish requirements for the granting of all or part of said capacity that weigh, in addition to technical and economic issues, the potential environmental and social benefits. In order to design and convene these procedures as soon as possible, the General Directorate of Energy Policy and Mines of MITECO is empowered to request the system operator to calculate the maximum capacity available in each of these nodes.

AGILITY AND LEGAL CERTAINTY OF ENVIRONMENTAL REGULATIONS

The regulation also modifies the Environmental Assessment Law to provide it with greater agility and legal certainty, guaranteeing the protection of the environment, facilitating the processing of projects that allow the reactivation of the economy after the crisis caused by the COVID-19 pandemic.

In this sense, the extension of the validity of the impact statements is regulated, thus avoiding the existing legal vacuum, the procedure for determining the scope of the environmental impact study is streamlined and certain aspects of the simplified environmental assessment procedure are completed.