New Order updating remuneration parameters approved

In application of the provisions of Article 14 of Law 24/2013, of 26 December, on the Electricity Sector (hereinafter, "Law 24/2013") and Article 20 of Royal Decree 413/2014, of 6 June, regulating the production of electricity from renewable energy sources, cogeneration and waste, the approval of Order TED/171/2020, of 24 February, updating the remuneration parameters of facility types applicable to certain plants producing electricity from renewable energy sources, cogeneration and waste, for the purposes of its application to the regulatory period starting on 1 January 2020 (hereinafter, the "Order TED/171/2020"). This regulation was approved before the deadline established for this purpose (29 February 2020) as set out in Royal Decree-Law 17/2019, of 22 November, adopting urgent measures for the necessary adaptation of remuneration parameters affecting the electricity system and responding to the process of ceasing the activity of thermal power plants (hereinafter, "RDL 17/2019").

The main aspects regulated by this rule are as follows:

A. Establishment of new facility types and the reallocation procedure for the assignment of plants to which the third final provision of Law 24/2013 does not apply.

RDL 17/2019 fixed the value on which the reasonable profitability of the plants for the production of electrical energy from renewable energy sources, cogeneration and waste will revolve. In this respect, for those plants that would have obtained the right to receive the specific remuneration scheme after Royal Decree-Law 9/2013, of 12 July, which adopts urgent measures to guarantee the financial stability of the electricity system (hereinafter, "RDL 9/2013"), the value is fixed at 7.09%. Also, through RDL 17/2019 a third final provision was introduced into Law 24/2013, establishing that for those plants that had recognised primary remuneration on the entry into force of RDL 9/2013, the value on which the reasonable return will depend cannot be revised during the two successive and consecutive regulatory periods from 1 January 2020. However, the possibility was provided for these plants to waive this exceptionality. It is worth mentioning that, for these plants the profitability could be 7.398% if the provision of first paragraph of the third final provision is verified, or otherwise 7.09%.

Order TED/171/2020 now establishes new facility types ("instalación tipo" or "IT") and remuneration parameters for the assignment of plants to which the exception referred to in the previous paragraph does not apply, and regulates the procedure for reallocation of installations in these cases. The General Directorate of Energy Policy and Mines will resolve the waiver requests received and will assign the corresponding facility type to the plant that has resigned. In the event that judicial or arbitral proceedings have been initiated, the State's Attorney will communicate this to the mentioned General Directorate and this governing body will assign the facility type to the relevant plant. However, before 30 September 2020, the parties can terminate the judicial or arbitral procedure or they can resign to the receipt of the compensation or indemnification and the General Directorate will assign the relevant plant the corresponding facility type. In addition, if the above-mentioned compensation or indemnity has been received, the General Directorate shall approve the revocation of the exceptional remuneration scheme and assign the corresponding facility type to the relevant plant. The maximum period to resolve and notify the resolution of these procedures is 6 months. After this period, the application shall be deemed to have been rejected.

B. Update of the remuneration parameters of facility types.

The remuneration parameters are established for the second regulatory period from 1 January 2020 to 31 December 2025 and the investment remuneration and the remuneration for the operation are established for the first regulatory semiperiod, without prejudice to the successive revisions that may take place. The revision contained in Order TED/171/2020 refers to all the facility types approved to date, regardless of the order through which they were approved.

However, the compensation parameters are not updated: (i) for the plants that have exceeded their regulatory useful life before 1 January 2020 and are not entitled to receive the specific remuneration system and (ii) for the wind and photovoltaic type plants in the electricity systems of the non-peninsular territories included in annex I of Order IET/1459/2014, of 1 August, applicable to the plants whose remuneration system was assigned through the auction procedure, due to the fact that none has been held so far and, therefore, the remuneration parameters of these types of plants have not been approved.

C. Establishment of new facility types for the allocation of plants not included in sectors deemed to be at risk of carbon leakage and the reallocation procedure applicable to these plants.

In order to correctly allocate the costs associated with the acquisition of emission rights, new facility types are approved whose operating costs are affected by the costs associated with the acquisition of these emission rights. They must also belong to sectors or subsectors that are not at risk of carbon leakage. The allocation procedure shall be carried out on request.

D. Approval of the estimated market price for each year of the third regulatory semiperiod.

The estimated market price values for 2020, 2021 and 2022 are approved, which are respectively 54.42 euros/MWh, 52.12 euros/MWh and 48.82 euros/MWh.

The measures established in this Order entered into force on 29 February 2020.

Note: This publication constitutes the individual opinion of Osborne Clarke. It is based on a particular interpretation of the existing legal system. It should be applied with weight and caution and be considered subject to any other opinion that is better founded in law.