Draft of a new call for the granting of the specific remuneration system to apply to new electrical energy production facilities from renewable sources

On 29 December 2016 the Ministry of Energy, Tourism and Digital Agenda published the Royal Decree Proposal and Order establishing a new call for the granting of the specific remuneration regime to new facilities that produce electrical energy from renewable sources. They also regulate the allocation procedure, and are subject to a public consultation period of 15 working days. This will be the second call, after the first in October 2015, for the allocation of 3000 MW for new facilities.

Royal Decree-Act 9/2013 of 12 July adopting urgent measures to guarantee the financial stability of the electrical system marked the beginning of the process of reform of the electricity sector, in the wake of which a new legal and economic regime was established for facilities producing electrical energy from renewable sources, cogeneration and waste, implemented by the approval of Act 24/2013 of 25 December of the Electricity Sector, Royal Decree 413/2014 (RD 413/2914) and EIT Order 1045/2014.

Article 12 of RD 413/2014 provides that for the granting of the new specific remuneration regime the conditions, technologies or group of specific facilities that may participate in the competitive tendering process will be established through Royal Decree.

In October 2015 the Government approved the first call for the granting of the specific remuneration regime through an auction, with the objective of allocating 200 MW for biomass facilities and 500 MW for wind farms. The result of this call was unexpected in the sector as the companies that were successful bidders offered a 100% reduction in the standard value of the initial investment of the reference rate facilities, which means that they were successful in the call but did not obtain the specific remuneration regime. The result was therefore surprising given that even if the total auctioned power was awarded, none of the facilities would receive the specific remuneration regime, an offer that was not understood in the sector given that a company can install a wind, photovoltaic or biomass farm at any time without having to attend the call and sell their energy in the wholesale market ´without a premium´.

A year later and with the clear aim of achieving the objectives set out in Directive 2009/28/EC of the European Parliament and Council of 23 April 2009 on the promotion of the use of energy from renewable sources, the draft order and royal decree that will regulate this second call for the allocation of the specific remuneration regime have been published. Below we point out some of the most notable elements of this new call, and the differences that arise when compared with the previous one.

• Accepted facilities: Unlike the previous call, which allowed for repowering, only new facilities that use one of the non-fossil renewable energies as primary energy will be admitted, therefore excluding facilities that include a cogeneration plant and facilities that use energy waste with energy recovery as primary energy. Facilities (i) which would have been granted an economic regime prior to the entry into force of this new call; (ii) whose construction means the closing or reduction of power of another facility with the same technology; and (iii) facilities formed of main equipment that is not new or has previously been used will not be able to participate.

Three reference type facilities are established: wind, photovoltaic and other technologies.

• Type of auction: Competitive tendering. The auction consists of offering a percentage reduction of the standard value of the initial investment for the facility type (which directly affects both the return on the investment and the remuneration of the operation).
• Auction procedure: Offers will be presented for the reduction of the standard value of the reference type installation that corresponds to the technology, and for each of the offers the overheads per unit for the system will be calculated, (this calculation would be the ratio between the Return on the Investment and the equivalent hours of operation).
• Order of bids: Bids, regardless of technology, will be ordered from lowest to highest unit cost for the system, with bids of less value being awarded until the power to be awarded is reached. The final bid will be the one that determines the value of the marginal unit overhead resulting from the auction.
• Regulatory useful life of assets: Irrespective of technology, 25 years. It means an extension of the term of the previous call that fixed the term at 20 years for wind and 25 for biomass.
• Reasonable rate of return: 503%. The same as the previous call.
• Deadlines: The winners of the auction will have 45 working days to submit the application for registration in the Specific Remuneration Regime Register under pre-assignment (SRRUP). The implementation project must be carried out within 12 months of the publication of the registration in the Official State Bulletin, executing the guarantees provided in case of default.
• Guarantees: The guarantee for the registration in the SRRUP increases to 60€/kW. A guarantee cancellation mechanism based on achieving milestones is also established.

It remains to be seen whether the result of this call will surprise the sector again or if, following the first experience of this new auction system, the allocation of the specific remuneration regime to renewable facilities after the moratorium on aid agreed in early 2013 will finally happen.