Draft Royal Decree developing the procedure and requirements to be met for the granting of administrative authorisation for closed electricity distribution networks

At the end of 2018, the Government approved by the means of Royal Decree-Law 20/2018, of 7 December, on urgent measures to boost economic competitiveness in the industrial and commercial sector in Spain, a series of measures to help electricity-intensive companies maintain their competitiveness and market share against the impact of the price of electricity. Such measures included the figure of the closed electricity distribution network.

This regulation also transposed Directive 2009/72/EC into Spanish law, which establishes the possibility for the Government to develop regulations in this area in accordance with the principles of economic and financial sustainability of the system, energy efficiency and just transition.

In this regard, the Ministry for Ecological Transition and the Demographic Challenge has initiated the processing of the Draft Royal Decree developing the procedure and requirements to be met for the granting of administrative authorisation for closed electricity distribution networks (hereinafter, the "Draft Royal Decree"), which will regulate the granting of administrative authorisations for closed electricity distribution networks with the aim of reducing electricity costs in reduced industrial, commercial and service areas.

To this effect, the process of public information for the Draft Royal Decree was opened on 10 June 2021, and the deadline for submitting allegations or contributions to the Directorate General for Energy Policy and Mines closed on 1 July 2021.

1. Closed electricity distribution network concept

The Draft Royal Decree defines a closed electricity distribution network that distributes energy to industrial customers with interrelated production processes concerning an area not exceeding 5 square kilometres in size, and which may also serve to supply up to a maximum of 100 non-industrial consumers, provided that certain conditions are met, such as having employment or commercial relations with the owners or partners of the closed network and representing less than 1% of total consumption.

In order to guarantee that they are customers with interrelated production processes, connected consumers are required to prove that at least 50% of them, or that a number of connected customers representing at least 80% of the energy consumed in the distribution network, have a related productive activity as their corporate purpose. To this end, they must prove that their economic activity belongs to the same division and group according to the CNAE.
The networks may not be connected to each other and must establish or have boundaries with distribution companies or the transmission system operator and with consumers or connected generation plants. Nor may customers be connected to each other in cascades, but through the network itself.

2. Closed distribution system operators

According to the Draft Royal Decree, the owners of these closed distribution networks must be commercial companies or cooperatives, whose sole corporate purpose is the distribution of electricity in a closed network. They must comply with the relevant obligations of a distribution company. However, they are exempted from specific requirements, such as, for example, having access to permit management platforms or a registration in the distributors' Register.

The operators of the closed distribution systems shall be the operators of these systems and, consequently, shall be responsible to the owners of the distribution or transmission systems, to the operators of these systems, and to the system for any breaches of obligations to which they are subject.

3. Billing and metering

In order to concentrate the activity, the network operator will be the one to invoice the customers connected to its networks for tolls, charges and other network costs. At the same time, the energy consumption itself will be individualised for each customer, who will be able to contract it through the usual channels via a trader or directly on the market.

In case of customer complaints about tolls and charges, the National Commission for Markets and Competition (CNMC) and the Government may analyse the methodology for the review and approval of tolls and charges, excluding the part relating to other costs.

4. Authorisation procedure

The Draft Royal Decree designs a procedure for the authorisation of closed networks in which, in addition to justifying legal, technical and economic capacity to apply for authorisation, applicants must provide billing information, power and energy data, as well as connection diagrams of both the current situation and future developments. The authorisation must be endorsed by the CNMC.

The authorisation of closed distribution networks is conclud by a resolution of the Directorate General for Energy Policy and Mines, which will ensure that the project does not impact the sustainability of the electricity system.

On the other hand, the regulation states a revocation procedure in the event of non-compliance with the requirements of the Royal Decree itself or of the authorisation resolution. The revocation foresees that the assets of closed distribution networks may be acquired by the upstream distribution or transmission company at a given price to be proposed by the CNMC.

Therefore, the CNMC will carry out the necessary inspections to verify compliance with the regulation requirements and the conditions established in the authorisation resolution at least once every three years.